What is a Cryptocurrency ETF and How Does it Work?
A cryptocurrency exchange traded fund is a fund made up of cryptocurrencies. A cryptocurrency ETF measures the price of one or more digital tokens, whereas the majority of ETFs track an index or a basket of assets.
Two different types of cryptocurrency ETFs exist:
The first kind is supported by actual cryptocurrency. The cryptocurrency purchases are made by the investment company running the fund, and shares are used to indicate ownership of the coins.
Investors who purchase shares in the ETF will subsequently acquire cryptocurrencies. Owners can thus become exposed to cryptocurrencies without the cost and danger of outright ownership.
The second form is a synthetic variation that follows derivatives for cryptocurrencies, such as futures contracts and cryptocurrency exchange-traded products (ETPs).
The values of Bitcoin futures contracts traded at the Chicago Mercantile Exchange (CME), for instance, are tracked by several ETFs that have been suggested to the U.S. Securities and Exchange Commission (SEC).
The ProShares Bitcoin Strategy ETF (BITO), the first cryptocurrency ETF, began trading in October 2021. This ETF monitors the cost of Bitcoin futures.
As previously indicated, the first cryptocurrency ETF began trading in October 2021, and Coinbase Global Inc. (COIN), the largest cryptocurrency exchange in North America, is now a publicly traded company.