The crypto market is undergoing rapid innovation and cryptocurrency ETFs, or digital asset-focused funds, are no exception. While crypto investors were previously limited to only a few ETFs, there are now several on the market, with that number on the rise.
For example, VanEck’s Bitcoin Strategy ETF (XBTF) launched on November 16 and immediately went into rally mode as excitement about the crypto market attracted investors.
However, profit-taking was in evidence Thursday, as the ETF declined 4.18% early in the session (as of this writing).
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This product owns bitcoin futures contracts. A spot bitcoin ETF has not yet gotten the OK from the Securities Exchange Commission, In fact, on November 12, the SEC said it rejected a bitcoin ETF proposed by VanEck, which would have directly tracked the cryptocurrency’s price movements.
Just because a spot ETF is not yet available doesn’t mean you can’t gain access to this asset class through an exchange-traded fund.
In fact, these funds can be used in qualified retirement accounts, which could give investors an advantage when it comes to tax treatment.
While that’s a benefit, along with the appeal of gaining early access to an asset class many experts believe will gain over time, the crypto market remains volatile for a number of reasons, including ongoing regulatory hurdles in the U.S. and elsewhere.
Even if you opt to put a crypto fund in your retirement account, I’d suggest treating it as “play money,” or as an investment outside your planned allocation. That way, you won’t derail your retirement income if it goes through a lengthy correction, and if you see a large rally, it’s icing on the cake.
Here are some currently available cryptocurrency ETFs that you might consider:
4 Cryptocurrency ETFs
ProShares Bitcoin Strategy ETF (BITO)
When this fund made its debut on October 19, it became the first crypto ETF to get full SEC approval. This ETF opened doors for investors who prefer to buy into a basket of securities and avoid the hassle of picking their own individual investments.
According to ProShares, “The fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts.” It does not invest directly in bitcoin and ProShares cautions that the price and performance of bitcoin futures should be expected to differ from the current bitcoin “spot” price.
Don’t get carried away believing this (or any other crypto investment) is a one-way ticket to the moon. This ETF is trading 8.56% lower for the week, and is down 6.34% so far in November. In fact, it’s down 10% since its closing price on its first day of trading.
That’s not saying this ETF is doomed, but investors should be aware that crypto ETFs, just like cannabis ETFs, will not necessarily zoom higher in every market cycle just because of hype.
Grayscale Bitcoin Trust (GBTC)
Before the BITO ETF became available, investors had access to the Grayscale Bitcoin Trust.
Technically, this is a closed-end fund, but on the same day BITO launched, Grayscale applied to the SEC to convert the trust to an ETF.
Grayscale is the world’s biggest manager of digital currency assets. This particular fund launched in 2013 as a private-placement vehicle. It currently has $32.34 billion under management, dwarfing BITO’s AUM of $1.3 billion. GBTC holds actual bitcoin assets.
This fund has advanced 51.19% year-to-date, although it’s been forming a base since April.
With an expense ratio of 2%, this is a pricey fund.
Siren Nasdaq NexGen Economy ETF (BLCN)
As the name suggests, this ETF tracks the Nasdaq Blockchain Economy Index. It does not invest directly in cryptocurrency but instead targets securities that hold crypto.
Top holdings at the end of the third quarter were Overstock.com (OSTK), IBM (IBM), PayPal (PYPL), JPMorgan Chase (JPM) and Silvergate Capital (SI).
This ETF launched in January 2018 but remains very small, with only $328 million under management.
This is another ETF that’s been etching a base for several months, although it still boasts a year-to-date return of 22.15%, largely due to strong gains earlier this year.
First Trust Index Innovative Transaction & Process ETF (LEGR)
This ETF invests half its assets in companies developing blockchain technologies and the other half into companies currently using blockchain.
It, too, launched in January 2018 but is even smaller than the Siren Nasdaq NexGen Economy ETF, with just $99.5 million under management. Its daily trading volume is 21,300 shares.
However, unlike a stock’s daily turnover, an ETF’s trading volume typically has little effect on liquidity. In other words, you should be able to get something very close to your desired price when buying or selling shares.
It helps that its top holdings are themselves very liquid large caps, including Advanced Micro Devices (AMD), Nvidia (NVDA), Salesforce.com (CRM) and Microsoft (MSFT).
LEGR has hit price resistance below 45 three times since September 16. Clearing that hurdle in heavy turnover could indicate the start of a new rally.
Do you have any exposure to bitcoin or other cryptocurrencies? Tell us about it in the comments below.
Kate Stalter, Chief Analyst of Cabot ETF Strategist, is a Series 65-licensed asset manager, with more than two decades of experience in various areas of financial services. As an investment advisor and financial planner, Kate personally manages client portfolios, with a focus on successful retirement, including asset allocation, income generation and tax strategies.Learn More