What are Crypto ETFs?

Cryptocurrencies have evolved from niche assets to a mainstream investment category. Among the key innovations that bridge digital assets and traditional finance are crypto exchange-traded funds (ETFs). These products allow investors to gain exposure to cryptocurrencies without directly holding or managing them, combining the familiarity of traditional markets with the potential of blockchain technology.

The evolution 

In its early years, the crypto market was frequently compared to the Wild West due to its lack of regulation and oversight. One of the first major exchanges, Mt. Gox, dominated global trading volumes until a devastating security breach came to light in 2014. Nearly 750,000 BTC had been stolen over several years, with another 100,000 BTC unaccounted for. The loss was worth around $460 million at the time. Mt. Gox collapsed and went into liquidation, beginning repayments to creditors only in 2024.

Other platforms managed to survive and build legitimacy. Coinbase, founded in 2012, attracted millions of users with its customer-friendly design and became the first publicly listed crypto exchange in 2021. Kraken, launched in 2013, positioned itself as a secure alternative after its founder witnessed the shortcomings of Mt. Gox.

Yet for many investors, crypto remained difficult to access. Grayscale’s Bitcoin Trust (GBTC), launched in 2013, was one of the first regulated products. However, it was structured as a private trust that often traded at a premium or discount to its net asset value, limiting its effectiveness compared to traditional ETFs like SPDR Gold Shares (GLD).

The breakthrough moment arrived in October 2021, when ProShares launched the Bitcoin Strategy ETF (BITO), which tracked futures rather than spot prices. In January 2024, the SEC approved true spot Bitcoin ETFs, marking a turning point for the industry. Today, BlackRock’s iShares Bitcoin Trust (IBIT) is the largest, with $73 billion in assets under management (as of July 2025). Fidelity’s FBTC follows with $32 billion. For comparison, SPDR Gold Shares, the world’s largest gold ETF, holds just over $100 billion.

How crypto ETFs work

Crypto ETFs are designed to track the price of a cryptocurrency or a basket of cryptocurrencies. They trade on mainstream exchanges and can be held in the same accounts as stocks, bonds, or mutual funds. Investors purchase ETF shares rather than the crypto itself, removing the need for direct custody.

There are two main types of crypto ETFs:

• Physical ETFs, which directly purchase and hold the underlying asset, offering straightforward exposure.

• Synthetic ETFs, which replicate performance using derivatives. These products can introduce counterparty risk because they depend on contractual obligations being met..

To date, all SEC-approved spot products are physical, providing greater transparency and simplicity for investors.  

Benefits of investing in ETF crypto

Investors turn to crypto ETFs for several key advantages:

• Peace of mind: Regulated by the SEC, these products must meet strict reporting and disclosure standards.

• Transparency: Spot ETFs are easy to understand—they buy and hold the underlying asset.

• Accessibility: Investors can buy them via familiar channels such as banks and brokers, without needing to interact with unregulated exchanges.

• Cost efficiency: As passive investments, fees are lower than actively managed funds. Spot Bitcoin ETFs currently charge as little as 0.25% per year.

Risks

As with any investment, risks exist:

• Volatility: Crypto markets remain highly volatile, driven by news events, regulation, and investor sentiment.

• Limited trading hours: ETFs trade only during exchange hours, while crypto itself trades 24/7.

• Tracking error: ETFs may diverge slightly from the underlying asset due to fees, liquidity issues, or timing mismatches.

• Counterparty risk: Synthetic ETFs, in particular, carry the risk of issuer default or technical failure.

Performance of a crypto ETF

The performance of a crypto ETF is designed to mirror the movements of its underlying asset. For spot ETFs, this means returns are closely tied to the live market price of Bitcoin, Ethereum, or whichever cryptocurrency the fund holds. When the price of Bitcoin rises, a spot Bitcoin ETF should rise in near-perfect lockstep, minus fees.

However, investors need to be aware of several nuances:

• Tracking accuracy: Spot ETFs typically track their asset very closely, but small discrepancies can occur due to fund expenses or slight differences between ETF trading hours and the 24/7 crypto market.

• Futures-based products: ETFs that use futures contracts may diverge from spot prices. This is due to the cost of rolling contracts forward and the effects of “contango” (when futures prices trade higher than spot prices). Over time, this can erode returns compared to direct ownership.

• Relative comparisons: While Bitcoin ETFs provide exposure to a single asset, index-style products may show smoother but more diluted performance. Gains from one coin can offset losses from another, producing more stable results but limiting dramatic upside.

In practice, the largest ETFs have shown strong alignment with Bitcoin’s price, giving investors confidence in the reliability of these instruments.

Costs of a crypto ETF

Like all ETFs, crypto ETFs charge management fees. These are expressed as an annual expense ratio, deducted from the fund’s assets. Fees directly impact returns, so they are a key factor in choosing between products.

• Spot Bitcoin and spot Ethereum ETFs: Since their approval in 2024, issuers have competed aggressively on fees. The lowest expense ratios are currently around 0.20%–0.25% per year, significantly cheaper than traditional crypto trusts like GBTC, which charged 2%.

• Futures-based ETFs: These often carry higher costs, not only in expense ratios but also from the hidden “roll costs” of maintaining futures exposure.

• Indirect costs: Investors should also be aware of bid-ask spreads and liquidity. Larger funds typically offer narrower spreads and higher trading volumes, making them more cost-efficient to trade.

For long-term investors, the low expense ratios of spot products mean crypto ETFs can be a cost-effective way to maintain exposure, particularly compared to direct trading on exchanges where fees, slippage, and custody risks accumulate.

Expanding ETF options

Most crypto ETFs to date track a single asset, primarily Bitcoin. In July 2024, the SEC also approved spot ETFs for Ether (ETH), the second-largest cryptocurrency by market cap ($313 billion as of July 2025).

More products may be coming: as of September 2025, over 90 applications are pending with the SEC, including those tied to Solana (SOL), Ripple’s XRP, and even Dogecoin (DOGE), a memecoin popularized by Elon Musk.

Another option to consider is crypto-equities ETFs, which track equities tied to the crypto industry, most often Bitcoin miners. 

How to choose the right crypto ETF?

The right ETF depends largely on an investor’s goals and tolerance for risk. Crypto prices can swing 30–50% in a single day, so it is essential to be realistic about how much volatility one can withstand..

When evaluating ETFs, consider:

• Costs: Annual management fees apply but avoid the complexity of direct custody and transfers.

• Exposure: Decide between single-asset ETFs (focused and potentially higher-risk) or index-style products (diversified but potentially diluted returns).

The first approach involves putting your money into a single cryptocurrency, such as Bitcoin or Ethereum. This offers the opportunity to benefit fully if that specific coin performs strongly. It can also be easier to follow one asset’s market trends and developments. However, it carries higher risk: your overall performance depends entirely on one project’s success, and if it underperforms, there is no cushion from other assets.

The second approach is to invest in several cryptocurrencies, either in equal proportions or weighted toward certain ones. This diversified strategy spreads risk, as the underperformance of one coin can be offset by gains in another—similar to owning shares across different industries. It also enables you to capture growth from multiple areas of the crypto market, such as payments, smart contracts, or blockchain infrastructure. On the downside, gains in one area can be diluted if another part of the basket performs poorly.

How to invest in a crypto ETF?

Investing in a crypto ETF is straightforward, open a brokerage account or retirement account, fund it, and place an order for the ETF, just as you would with any stock or traditional ETF.

Conclusion

Crypto ETFs represent one of the clearest signs that digital assets are moving into the financial mainstream. They offer a bridge between the innovation of blockchain and the reliability of regulated markets. For investors, they combine ease of access with professional custody and competitive costs. Yet, they also inherit the volatility and unpredictability of the underlying assets.

As the product range grows beyond Bitcoin and Ethereum, and as regulators continue to refine their frameworks, crypto ETFs are likely to become a permanent fixture in portfolios. Whether chosen for diversification, speculation, or as a hedge, they are part of the evolving core of modern investing.

Frequently asked questions

Are crypto ETFs safe?

Crypto ETFs store the crypto with custodians, who typically keep it in ‘cold’ or offline wallets. Potential tracking errors can always be corrected by authorized participants through ETF arbitrage mechanisms.

Do crypto ETF pay dividends?

Not in the traditional sense, since cryptocurrencies are not company shares. However, future products could distribute staking rewards from proof-of-stake assets like Ethereum or Solana, but these are not yet SEC-approved.

How is a crypto ETF different from buying Bitcoin directly?

Crypto ETFs are accessible through traditional accounts, with regulated custody and reporting. Direct purchases require self-custody, which carries operational risks.

Can beginners invest in ETFs?

Yes. They are often the simplest way for new investors to gain exposure to digital assets, as they mirror the experience of mainstream ETFs while tracking crypto.