What Is ETF (Exchange-Traded Fund)?
Also known as: Exchange Traded Fund, Crypto ETF, Bitcoin ETF, Spot ETF
In short
An ETF (exchange-traded fund) is an investment fund that tracks an index, commodity, or basket of assets and trades on an exchange like a stock; crypto ETFs let investors gain exposure to assets like Bitcoin through a brokerage account without holding them in their own wallet.
ETFs can be bought and sold throughout the day during exchange hours, and their prices stay close to the fund's net asset value thanks to the share creation and redemption mechanism run by authorized participants. Crypto ETFs fall into two main types: spot ETFs hold the underlying asset itself, such as Bitcoin, at a custodian; futures-based ETFs invest in futures contracts on the asset and may deviate from the spot price because of roll costs.
In the US, the first futures-based Bitcoin ETF began trading in 2021, while spot Bitcoin ETFs were approved by the US Securities and Exchange Commission (SEC) in January 2024. Spot Ether ETFs also began trading the same year. These products opened a way for asset managers, institutional investors, and retail investors to invest in cryptocurrencies within a regulated structure.
An ETF investor owns a share in the fund, not the underlying asset itself; they cannot withdraw the coins to their own wallet or use them on the blockchain. Funds charge an annual management fee and trade only while the exchange is open, whereas the crypto market is open 24/7. Dependence on the custodian is also a risk to consider.
Last updated: · This content is for information purposes only and is not investment advice.