ETF (Exchange-Traded Fund) is a fund whose shares are available for purchase and sale on an exchange. This fund owns assets selected based on specific parameters. The fund's portfolio can include stocks, commodities, bonds, currencies, indices, and other instruments.
Contents:
- Investing in ETFs
- Cryptocurrency ETFs
- Crypto ETFs that are already trading
- Prospects for cryptocurrency ETFs
Investing in ETFs
When buying an ETF share, an investor obtains a stake in the assets of that fund, but does not actually become the owner of those assets. ETFs are created and managed by professional firms that also handle portfolio rebalancing and reporting. Leading players in the ETF market include companies like BlackRock, Vanguard, State Street, Invesco, iShares, and Charles Schwab.
Currently, exchange-traded funds have become a key tool for investing. According to data from Informa Financial Intelligence, in November 2021, the total volume of assets in ETFs reached over $10 trillion, compared to $5 trillion in 2018.
For large investors, ETFs offer an excellent solution for passive investing. Different from active approaches, ETFs free the investor from the need to directly participate in trading assets, have a straightforward legal structure, and tend to show more stable returns in the long term.
For private investors, ETFs are a means of quickly and efficiently diversifying an investment portfolio due to a wide range of assets in the fund's composition. Moreover, ETF managers usually charge lower fees compared to traditional investment funds.
Cryptocurrency ETFs
Many major investors are reluctant to directly acquire digital assets due to the lack of a clear legal framework and storage issues. However, ETFs can serve as a convenient and familiar mechanism for integration into the world of cryptocurrencies.
ETFs offer a familiar legal model, operating within the existing financial infrastructure. It is also a liquid financial instrument that can quickly debut on leading exchanges, providing access to investments in cryptocurrencies for both major players and individual investors. Meanwhile, the responsibility for the safe storage of primary assets rests with the ETF management company.
Source: ForkLog
Currently, in many countries, there are exchange-traded funds that have an indirect relationship to the blockchain industry, for example, those whose prices are tied to a portfolio of cryptocurrency company stocks. Of particular interest are ETFs based on cryptocurrencies: in this context, the fund management company purchases digital assets, thereby stimulating additional demand in the cryptocurrency market. The value of such products correlates with the current quotes of crypto assets.
Crypto ETFs that are already trading
It is believed that the primary potential for cryptocurrency ETFs lies in the United States. Since 2018, numerous companies have tried to obtain SEC approval to launch such funds. However, to date, the regulator has not greenlighted any of the proposed instruments.
In February 2021, Canada became the first country in North America to issue a spot bitcoin ETF named Purpose Bitcoin ETF. This fund is traded on the Toronto Stock Exchange, and its assets exceed $800 million.
There are also other ETFs indirectly associated with the cryptocurrency market:
- One of the most popular is the Bitcoin Strategy ETF (BITO) from ProShares. By the end of 2021, it received SEC blessing and debuted on the New York Stock Exchange. The basis for BITO is bitcoin futures that have been in circulation on the Chicago Mercantile Exchange since 2017. By May 2022, its assets approached $1 billion.
- After receiving SEC approval in 2021, companies VanEck and Valkyrie Investments also introduced their ETFs. In April 2022, Teucrium received permission to launch a bitcoin futures ETF.
- Grayscale offers an ETF named Future of Finance (GFOF) that features stocks from the blockchain and cryptocurrency sectors. In May 2022, the fund debuted on European markets.
- BlackRock announced the launch of its crypto industry-oriented ETF, and Samsung Asset Management plans to introduce a fund based on blockchain enterprises on the Hong Kong exchange.
In addition, there are ETFs based on alternative cryptocurrencies. For instance, in 2022, an ETF based on DeFi coin indices began trading in Brazil.
Prospects for cryptocurrency ETFs
Experts predict that spot crypto ETFs may be launched within the next 1-2 years. Currently, the Securities and Exchange Commission (SEC) is considering several applications to create such investment products. For example, Grayscale, a well-known company in the field of cryptocurrency investments, expressed an intention to transform its bitcoin trust into an ETF. Additionally, companies ARK and 21Shares also expressed interest in issuing their cryptocurrency exchange-traded funds.
Source: ForkLog
In March 2022, one of the largest brokerage firms in the US, Charles Schwab, filed a request with the Securities and Exchange Commission (SEC) to launch an ETF based on its own "crypto economy index". According to the company's statement, the primary assets of this ETF will be "companies benefiting from the mining or use of cryptocurrencies and other digital assets".
