What’s the difference between traditional ETFs and crypto ETFs?
The main difference between traditional ETFs and crypto ETFs lies in the respective assets they track. Traditional ETFs replicate indices of assets such as securities or commodities, while crypto ETFs follow the price performance of cryptocurrencies. Crypto ETFs often cover only one cryptocurrency and tend to be more volatile, while traditional ETFs contain a range of assets. This usually leads to lower fluctuations and greater stability in traditional ETFs compared to crypto ETFs. As a result, traditional ETFs offer significantly broader diversification than crypto ETFs.
There are therefore differences in underlying assets and asset classes, volatility and risk, regulation, handling and custody.
Underlying assets and asset classes
Traditional ETFs: track indices of assets such as securities or commodities
Crypto ETFs: track the performance of individual cryptocurrencies such as Bitcoin, Ethereum or XRP and can also cover multiple cryptocurrencies
Volatility and risk
Traditional ETFs: often offer broad diversification, as they may include a variety of assets, and are less volatile than cryptocurrencies
Crypto ETFs: are subject to strong price fluctuations, which can lead to higher returns but also higher risk
Regulation
Traditional ETFs: subject to clear and established regulatory conditions
Crypto ETFs: subject to differing regulations depending on the country, which are not yet fully developed; for example, crypto ETFs in Europe are only available as ETPs
Handling and custody
Traditional ETFs: trading and custody are handled like shares via a securities account with a regulated broker
Crypto ETFs: provide investors with access to the crypto market without needing to buy or store the underlying assets themselves, as custody is handled by the issuer
Which cryptocurrencies are typically included in crypto ETFs?
Most crypto ETFs and crypto ETPs focus on individual, established cryptocurrencies with high market capitalisation. These include especially Bitcoin and Ethereum, and in some cases Solana or XRP.
In the US, ETFs for Bitcoin and Ethereum that are physically backed by the respective coins have already been approved. These spot crypto ETFs are seen as a new way to invest in cryptocurrencies indirectly, in a regulated manner and tradable via traditional stock exchanges.
In Europe, however, no classic crypto ETFs are available to investors. Instead, there’s a wide range of crypto ETPs, which usually track a single cryptocurrency. Examples include the 21Shares Bitcoin ETP or the Bitwise Physical XRP ETP. These products are considered regulated alternatives to ETFs and can also be purchased via exchanges.
Those seeking broader diversification can also find ETF-like products that bundle multiple cryptocurrencies. Such crypto ETPs offer a simple way to invest in various coins through a single product, similar to a traditional ETF in the equity market.
Which crypto ETFs are available?
There is a selection of crypto ETFs. However, when looking for crypto ETFs, check carefully whether it’s truly an ETF or actually an ETN. ETNs are often listed among crypto ETFs, which can lead to confusion.
Below is a list of physically backed crypto ETFs available to US investors:
iShares Bitcoin Trust (IBIT)
Fidelity Wise Origin Bitcoin Fund (FBTC)
ARK 21Shares Bitcoin ETF (ARKB)
Bitwise Bitcoin ETF (BITB)
Grayscale Bitcoin Trust (GBTC)
VanEck Bitcoin Trust (HODL)
Invesco Galaxy Bitcoin ETF (BTCO)
iShares Ethereum Trust ETF (ETHA)
Grayscale Ethereum Trust ETF (ETHE)
Fidelity Ethereum Fund ETF (FETH)
When choosing an ETF, pay attention to factors such as size, cost, income distribution, fund domicile and replication method.In Germany, you can invest in cryptocurrencies via debt securities (ETNs). Here are examples of crypto ETNs:
CoinShares Physical Bitcoin (GB00BLD4ZL17)
WisdomTree Physical Bitcoin (GB00BJYDH287)
iShares Bitcoin ETP (XS2940466316)
21Shares Bitcoin ETP (CH0454664001)
Are there crypto ETFs in Europe?
There are no crypto ETFs for the entire European market, as they don’t meet the specific guidelines for ETFs or UCITS regulations. These rules are intended to protect investors when purchasing ETFs and ensure greater transparency.
Since the guidelines state that ETFs must offer sufficient diversification, ETFs with only one asset such as Bitcoin ETFs are excluded. Additionally, an ETF must include at least five different assets, none of which may exceed 20%. Another aspect is that the assets in the ETF must be protected against issuer insolvency and managed as segregated assets.
These conditions prevent the launch of a Bitcoin ETF in the EU. Even a crypto ETF covering multiple cryptocurrencies would currently be difficult due to high price fluctuations. To maintain equal weighting of cryptocurrencies in an ETF, near-daily rebalancing would be required, meaning frequent buying and selling of coins and tokens. This would lead to increased costs and reduced returns.
What are the pros and cons of crypto ETFs?
Crypto ETFs offer many advantages that make them an attractive investment option for many investors. They combine the opportunities of the crypto market with the simplicity and greater security of traditional financial products. But despite these benefits, crypto ETFs also come with downsides that should be weighed before investing. Some risks and limitations are specific to crypto ETFs, while others apply generally to exchange-traded products.
Key advantages at a glance
Easy access to cryptocurrencies: Crypto ETFs let you benefit from the price performance of digital assets without having to deal with buying or managing cryptocurrencies directly.
Regulated environment: Since ETFs for cryptocurrencies are monitored by financial authorities, investors benefit from a high level of security and transparency.
Liquidity: As you can buy crypto ETFs on exchanges like shares, this allows for fast buying or selling.
Simple integration into existing trading strategies: You can add crypto ETFs to your portfolio just like other exchange-traded funds, without needing extra tools or platforms.
No wallets required: Since you don’t hold cryptocurrencies directly, there’s no need to create a crypto wallet or secure private keys.
Physical backing: Crypto spot ETFs are physically backed, meaning the respective cryptocurrency is purchased and held as collateral.
Key disadvantages at a glance
Higher costs: Crypto ETFs often incur more fees than traditional ETFs, which can impact returns over time.
Tracking error: The performance of a crypto ETF may differ from the actual price development of the underlying cryptocurrencies, especially in synthetic products.
Limited selection: In Germany, crypto investments via exchange-traded products are only possible in the form of ETPs.
Regulatory uncertainties: Crypto ETFs are subject to legal and regulatory risks that can affect their availability and structure.
No direct ownership of cryptocurrencies: Since crypto ETFs only provide indirect access to cryptocurrencies, you can’t benefit from advantages like direct staking or using coins in the crypto ecosystem.
Volatility: The sharp price fluctuations of cryptocurrencies also affect crypto ETFs, making them a higher-risk investment.
Exchange-traded crypto products also carry certain risks, such as high price volatility or issuer risk. By comparing costs, providers and product structure, you can significantly reduce many of these risks. A savings plan covering several cryptocurrencies also helps with long-term investing and balancing out volatility.
New spot crypto ETFs in the US: Is broad approval coming?
In the US, the approval of spot crypto ETFs is progressing. Following the approval of several physically backed Bitcoin ETFs in early 2024, products for other cryptocurrencies like Ethereum, Solana or XRP are now being considered.
The US Securities and Exchange Commission (SEC) is planning a simplified approval process that could soon allow for faster launches of additional crypto spot ETFs. While implementation has recently been slowed by budget-related delays within the US government, market observers still expect gradual approvals of more ETFs in the coming weeks.
For investors in Europe, these developments are exciting, as they may lead to increased demand and growing interest in crypto ETFs and comparable products like ETPs here too.
Investing with Bitpanda
Since no classic crypto ETFs are currently available in Europe, direct investment in cryptocurrencies offers a real alternative. With Bitpanda, you can invest in coins like Bitcoin, Ethereum or Solana easily and flexibly, without going through exchange-traded products. Our user-friendly platform lets you build and diversify your portfolio individually.
Your advantages with Bitpanda at a glance
Direct control: Unlike with crypto ETFs, you actually own the coins and tokens and can use them for staking, trading or other purposes in the crypto ecosystem.
Broader selection: With Bitpanda, you have access to a wide range of cryptocurrencies.
Flexibility: You decide when and how much you want to invest, without being tied to exchange trading hours.
Low entry barriers: You can start investing in cryptocurrencies on Bitpanda with small amounts and gradually build your portfolio.
Savings plans: Bitpanda allows you to set up regular crypto savings plans to benefit from the cost-average effect over the long term.
Low fees: Compared to the fees of many crypto ETFs, investing with Bitpanda is often more affordable, meaning more of your return stays with you.
