What is an ETF?

Investing in cryptocurrency can seem complicated, especially if you're just starting to explore the topic. How do you choose assets? How do you minimize risks? What tools are suitable for long-term investing? One of the most convenient solutions is ETFs, which allow you to invest in cryptocurrency without having to buy each asset separately. In this article, we will explore what ETFs are, how they work, and the different types of crypto ETFs.

What is an ETF?

An ETF (Exchange-Traded Fund) is an investment fund that combines multiple assets (stocks, bonds, commodities, cryptocurrencies) and is traded on an exchange like a regular stock. By purchasing a single ETF share, you are effectively investing in an entire portfolio of assets.

Simply put, imagine a box of chocolates with different flavors inside. Instead of buying each chocolate separately, you take one box and try them all at once. ETFs work the same way — they allow you to invest in multiple assets with a single click.

How does an ETF work?

The working principle of an ETF is quite simple: the fund forms a portfolio of assets, which may include stocks, bonds, gold, oil, or cryptocurrencies. Investors buy ETFs on an exchange just like regular stocks. Over time, the value of the ETF changes depending on the prices of the assets it holds. This way, you can invest in an entire industry or economy by purchasing just one ETF share.

Reasons for popularity

ETFs have become popular among investors due to their simplicity, as buying them does not require direct ownership of cryptocurrencies. They provide diversification since a single fund includes multiple assets, reducing risks.

Unlike traditional funds, ETFs have low fees, making them more accessible. They offer transparency, as the fund's composition can be checked in real time. High liquidity allows you to buy and sell ETFs at any time during trading hours.

Additionally, they are flexible — there are ETFs focused on Bitcoin, DeFi, Web3, and other sectors. For institutional investors, crypto ETFs provide a legal way to enter the crypto market.

Investment risks

Despite their advantages, crypto ETFs also come with certain risks:

• Market risk — cryptocurrencies are highly volatile.
• Currency risk — if the ETF is traded in a foreign currency (e.g., USD), exchange rate fluctuations may affect returns.
• Fees — crypto ETFs may charge management fees and additional expenses.
• Liquidity risk — some crypto ETFs have low trading volumes, making them harder to sell.
• Regulatory risks — cryptocurrency laws are evolving, which can impact the availability and value of funds.
• Contango risk (for futures ETFs) — a situation where futures prices are higher than spot prices, reducing profitability.

Types of crypto ETFs

There are several types of crypto ETFs:

• BTC-ETF — funds that track Bitcoin’s price. These can be:
  • Spot ETFs — the fund holds real Bitcoin.
  • Futures ETFs — based on Bitcoin futures.
  • Examples: Grayscale Bitcoin Trust (GBTC), ProShares Bitcoin Strategy ETF (BITO).
• ETH-ETF — similar to Bitcoin ETFs but tracking Ethereum’s price.
  • Example: ProShares Ether Strategy ETF (EETH).
• Crypto Index ETFs — invest in multiple cryptocurrencies to create a diversified portfolio.
  • Example: Bitwise 10 Crypto Index Fund.
• Blockchain ETFs — invest in companies working with blockchain technology but do not hold cryptocurrencies.
  • Examples: Amplify Transformational Data Sharing ETF (BLOK), Global X Blockchain ETF (BKCH).
• DeFi and Web3 ETFs — include companies developing decentralized finance (DeFi) and Web3 technologies.
  • Example: Hashdex Crypto Innovation ETF.

How to choose an ETF for investment?

Before purchasing, consider the following factors:

• Type of ETF — spot, futures, blockchain ETF, etc.
• Expense ratio — lower fees mean higher potential profits.
• Liquidity — higher trading volume makes it easier to sell ETFs.
• Risks and regulations — it's essential to consider the legal environment, especially in the crypto industry.

The Kursoff team advises carefully and thoughtfully selecting investment assets. A cool head and critical thinking are your best allies in crypto.

The process of buying an ETF

Choose a broker that provides access to the necessary exchanges (NYSE, Nasdaq, etc.), then open an account by verifying your identity and tax information. After that, fund your account conveniently, select an ETF based on its fees, liquidity, and asset composition. Use protective tools such as stop-loss and enable automatic dividend reinvestment if desired.

How to reduce investment risks?

• Diversify your investments — don’t put all your money into one ETF.
• Choose reliable assets — funds with a long history are more predictable.
• Invest regularly — a dollar-cost averaging strategy reduces the impact of market volatility.

Avoiding fraud

To protect yourself from fraud, use only licensed brokers and verified platforms. Do not trust promises of guaranteed profits, and always check fund information on official websites. Never share access to your account with third parties.

Conclusion

ETFs are one of the most convenient ways to invest in the stock market and cryptocurrency. They provide access to a diversified portfolio without requiring in-depth analysis of each company or asset. If you want to invest with minimal effort, crypto ETFs can be a great option. The key is to carefully select funds, consider their risks, and invest wisely.