Index ETFs

The SEC’s approval of ETFs tracking the spot (live) price of Bitcoin was a significant milestone and a welcome response to investors’ demand. One year after their launch, they became the most successful ETF debut in history, amassing $107 billion in assets.

Yet, there are thousands of cryptocurrencies beyond Bitcoin and Ethereum, many of which have the potential to be included in ETFs as well. The use cases for digital assets are diverse: decentralized software infrastructure, decentralized computing, and the tokenization of real-world assets, to name a few. The crypto industry is still in its infancy.

In this context, the launch of ETFs holding a basket of digital assets—such as index-based products—appears increasingly likely. Similar products offering exposure to stocks and bonds are already popular among investors: the three largest by assets under management (as of July 2025) track the S&P 500. Even Warren Buffett is a strong proponent of index investing: he won a $1M bet after a Vanguard product outperformed five hedge funds over 10 years.

Why baskets make sense in crypto

The crypto universe is vast (CoinMarketCap tracks nearly 10,000 coins) and fast-moving. 

Unlike traditional equity markets, where investors can rely on decades of financial disclosures, earnings reports, and valuation models, the crypto market lacks many of these established frameworks. Fundamental analysis is often challenging due to:

• The nascency of many protocols

• Limited or non-standardized financial data

• Rapidly shifting narratives and use cases

• High dependence on community sentiment, tokenomics, and network effects

Even seasoned investors with teams of analysts find it difficult to consistently identify the long-term winners in such a dynamic space.This is where basket-based exposure, such as index ETFs, becomes a compelling solution. By bundling multiple digital assets into a single, rules-based product, index ETFs:

• Reduce idiosyncratic risk: the collapse of a single token doesn’t derail the entire investment.

• Capture broad market upside: exposure to a range of sectors, like smart contracts, DeFi, infrastructure, or layer 2 scaling, means investors can benefit from overall ecosystem growth.

• Eliminate guesswork: investors don’t need to constantly reshuffle their portfolio to keep up with rapid market shifts or new token launches.

• Offer simplicity and transparency: investors gain exposure through a familiar investment vehicle that adheres to predefined index rules and methodology.

As the digital asset space matures, the move toward institutional-grade diversified products is accelerating. Just as equity investors turned to S&P 500 or MSCI World trackers to gain broad exposure without picking individual stocks, crypto investors are increasingly seeking the same hands-off access to this new asset class.

Built-in diversification: a smarter way to invest in crypto

In traditional finance, diversification is a well-established strategy: its value is almost taken for granted. But in the context of crypto, diversification is even more important. 

The crypto market is not only volatile but also structurally different. Projects rise and fall with extraordinary speed, often driven by narratives, hype cycles, or sudden shifts in network usage. In such an environment, placing all your bets on a single asset, even one as dominant as Bitcoin, can expose investors to outsized risk.

Bitcoin may dominate the headlines, but it represents just a portion of the innovation happening in digital assets. Ethereum, for instance, introduced smart contracts that enabled the birth of decentralized finance (DeFi), which now supports everything from algorithmic lending to decentralized exchanges. But the innovation doesn’t stop there:

• Layer 2 scaling solutions aim to make blockchains faster and cheaper.

• Decentralized physical infrastructure networks (DePIN) are reshaping cloud computing and connectivity.

• Decentralized AI protocols are building alternatives to traditional tech monopolies.

Many of these technologies are represented by tokens with strong market traction and active developer communities, but their lifecycles, correlations, and volatility profiles differ significantly.

This is where index ETFs stand out. Instead of trying to handpick the next Ethereum or Solana, an investor can gain broad exposure to an evolving mix of leading and emerging crypto assets, all wrapped in a single vehicle. By distributing capital across a carefully constructed basket, the risk of being overexposed to a single failure point is dramatically reduced.

Well-designed crypto indexes:

• Follow transparent methodologies based on liquidity, market cap, or sector representation.

• Are rebalanced periodically, ensuring the basket reflects market evolution and doesn’t stagnate.

• Include multiple sectors, such as smart contracts, infrastructure, and even governance tokens, offering a deeper layer of thematic diversification.

Importantly, index-based exposure doesn’t just protect against downside—it amplifies the chances of capturing upside by allocating to segments that are gaining momentum. For example, during the 2021 cycle, layer 1 smart contract platforms (like Ethereum and Solana) outperformed Bitcoin; in other cycles, DeFi or meme coins have led rallies. A diversified index captures these trends without requiring market timing or asset rotation by the investor.

Easy access for new investors

ETFs trade on traditional stock exchanges and can be bought and sold through standard brokerage accounts, just like equities or bond funds. That means investors can:

• Hold crypto exposure alongside traditional assets in a unified portfolio

• Track performance through their usual platform.

• Avoid the learning curve and infrastructure required to interact with blockchains directly

This simple access model removes a major barrier to entry—especially for wealth managers, retirement savers, or institutional allocators looking for regulated, operationally sound vehicles.

The alternative is purchasing crypto directly on an unregulated or underregulated exchange. This option means taking responsibility for storage, either relying on a third party like an exchange, which may be vulnerable to hacks or mismanagement, or setting up a digital wallet. If the holder loses the ‘private’ key issued with the wallet, they lose access to their funds.  

One of the benefits of an ETF is that the issuer also rebalances the portfolio on behalf of the investor, another important risk management strategy when investing in volatile assets. Rebalancing involves returning a portfolio to its original allocation, so if one asset outperforms, it doesn’t skew the risk profile.

What to look for in a crypto index ETF

Which assets are included? Bitcoin and ether are the two biggest assets by market cap, but altcoins can offer greater diversification against traditional asset classes and potential upside through exposure to innovative technologies. 

How often is the index rebalanced? There are different ways to rebalance a portfolio, either at regular intervals or when a holding exceeds a particular weighting. 

What are the fees? ETFs are passive investments because the issuer buys and holds the underlying assets. The fees should be low but they can vary: most spot bitcoin ETFs charge around 0.2%, but it can go up to 1.5%.  

Who is the issuer, and what is their crypto experience? Major players like BlackRock brought credibility and resources to the crypto sector. However, less familiar issuers are experienced in managing risk having previously launched products in Europe.  

A smart first step into crypto

Investing in crypto involves a steep learning curve, which index ETFs can flatten. They provide exposure to a diversified portfolio of digital assets, lowering risk and eliminating hours of research into a relatively new asset class. They also make crypto more accessible because they trade on mainstream brokerages, saving the holder from having to navigate crypto exchanges and manage digital wallets. But before investing, make sure to explore all the options as these products vary in terms of asset allocation, fees and the issuer’s track record.