Crypto ETFs: What Are They, And How Do They Work?

So if you’ve been paying attention to the market recently, you’d know that everyone’s been excited about the Bitcoin ETF news 🎉. Ever since the SEC approved 11 Bitcoin ETFs, many experts have predicted that this could be the fuel that the market needs for another bull run. 

But, should you really care? What are crypto ETFs in the first place? 🤔 We’ll answer all of these questions and more in this article: 

What Is A Crypto ETF? 

The word “ETF” is actually an acronym for “exchange-traded fund.” These are financial instruments that have been in existence for a long time, and they are quite popular. 

ETFs are investment products – kind of like mutual funds. The difference, though, is that ETFs trade on stock exchanges. With an ETF, investors are able to track a specific index, sector, or a class of assets – such as gold, precious metals, and event cryptocurrencies ✅. 

  • In the crypto world, an ETF allows investors to invest in cryptocurrencies without actually owning the cryptocurrencies directly. 
  • So, if you have a Bitcoin ETF, you basically have an investment tool that lets you invest in Bitcoin without actually buying the BTC itself. 

How Does A Crypto ETF Work?

Every crypto ETF is managed by an investment firm. In the case of a Bitcoin ETF, the investment firm buys Bitcoin from a crypto exchange like Quidax, then they issue shares of these holdings as ETFs on traditional stock exchanges like the New York Stock Exchange and the NASDAQ. 

From there, investors will be able to buy them. Easy peasy! ✨

Here are a few other facts you should know about crypto ETFs: 

  • Crypto ETFs track and reflect the prices of the cryptocurrencies they hold. So, as the coin’s price increases, so does the value of the ETF.
  • At the moment, there are 11 Bitcoin ETFs on the market. And, they’re all available on traditional exchanges. 

Crypto ETFs vs Buying Crypto: What’s The Difference? 

Basically, there are two main differences between investing in a crypto ETF and buying the coin. 

First is the fact that ETFs allow you to invest in crypto without actually owning the coins directly. Secondly, the investment firms that issue these ETFs tend to charge fees for helping investors trade and manage their ETFs 💰. On the other hand, if you buy crypto from an exchange, you only pay a one-time transaction fee for your purchase. 

So, Why Are Crypto ETFs So Popular? 

You might be thinking, “If it’s cheaper to just buy crypto, why are ETFs such a big deal?”

Well, the major benefit of crypto ETFs is that they allow more liquidity into the market. Because major coins like Bitcoin have a limited supply, there’s a limit to how much can be bought. With ETFs, investors can now invest directly in crypto without having to own the coins. 

Besides this, ETFs also make it possible for big-money investors and companies to have access to crypto. And as we all know, these are the guys who really move markets and cause prices to go up 📈. The more the investment, the higher the value of the asset – in this ase, more gains for everybody!


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