A Comprehensive Guide for Investors to Understand Crypto Assets ETF

What is a Crypto Assets ETF?

Crypto Assets Exchange-Traded Funds (crypto ETFs) provide investors with a novel asset allocation method. These funds are traded on exchanges and track the market performance of a single or multiple digital assets, allowing investors to gain indirect exposure to the crypto assets market without having to personally hold private keys or manage wallets.

Spot and Synthetic: Two Main Paths

Spot-backed ETF——Directly hold real assets

The first type is a physically-backed Crypto Assets ETF, also known as a spot ETF. In this model, the investment company managing the fund directly purchases and holds the corresponding Crypto Assets. When you buy ETF shares, you essentially hold the underlying Crypto Assets indirectly, without needing to custody any tokens yourself.

On August 15, 2023, Europe launched its first spot Bitcoin ETF, followed by multiple regions around the world applying for approval of similar products. The main advantages of this type of ETF are: easier access to the Crypto Assets market, compliance with traditional financial regulatory frameworks, and professional institutions responsible for secure storage and asset tracking. However, there are also limitations such as management fees potentially eroding returns, possible tracking errors, and the current selection of Crypto Assets still being relatively limited.

Synthetic ETF - Indirect investment based on derivatives

The second type is a synthetic Crypto Assets ETF, which tracks the price movements of derivatives such as Crypto Assets contracts and exchange-traded products (ETPs). The Bitcoin contract ETF is a typical example. In this structure, the performance of the ETF is linked to the derivatives rather than the actual value of the Crypto Assets. Although the price tends to converge with the spot price as the settlement date approaches, these types of ETFs introduce additional risks due to their reliance on derivatives, which may reduce operational transparency.

Crypto Assets ETF vs Traditional Stock ETF: Understanding Key Differences

The core design of both types of ETFs is to track the performance of underlying assets—stock ETFs track the prices of a basket of listed companies, while Crypto Assets ETFs track the performance of various digital coins. Both are traded on stock exchanges, providing investors with the convenience of not having to directly hold the assets.

However, the differences are significant. The complexity of digital currencies is higher than that of traditional stocks, and the volatility is also more severe, which brings unique risk considerations. Secondly, the regulatory framework for cryptocurrency ETFs is still not perfect, and regulatory authorities in various countries are still formulating relevant regulations. Third, the settlement and custody of digital assets involve special technical requirements—management companies need to adopt advanced security solutions such as cold storage to guard against online threats.

Why do investors choose cryptocurrency ETFs?

Crypto Assets ETF offers multiple advantages for investors looking to enter the digital asset market:

Simplified Investment Process — No need to learn wallet management, private key protection, and other technical details, participate directly through a familiar investment platform.

Integrating Mainstream Financial Systems — Crypto Assets ETFs are incorporated into traditional investment frameworks, allowing for portfolio allocation through existing channels such as retirement accounts and brokerage accounts, achieving asset diversification.

Lower Learning Threshold — Investors do not need to delve deeply into blockchain technology or encryption terminology; they can entrust their investment decisions to professional analysts while obtaining potential returns from digital assets.

This design makes crypto assets ETF an ideal bridge for traditional investors to enter the digital economy, allowing them to participate in the growth opportunities of innovative asset classes while avoiding related complexities.