The Top 5 Cryptocurrency ETFs, and ETF-like Cryptos To Watch In 2022

Will the SEC approve a spot Bitcoin ETF at any point soon? Only SEC Chair Gary Gensler really knows. The rest of us mere mortals have to go on what we’ve been given so far. Below is a basic guide to everything you need to know about the best available products at the moment.

Be aware that the ProShares Bitcoin Strategy ETF, the first crypto ETF, was approved on October 19th, 2021. So, the space is really just beginning.

First, let’s define what an exchange-traded fund or ETF is, with the help of the good people at Investopedia:

“An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. Typically, ETFs will track a particular index, sector, commodity, or other asset, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can.”

So, crypto ETFs provide exposure to the crypto market and, unlike cryptocurrencies per se, can be traded on a stock exchange. Some investors aren’t legally allowed to put their money into risky new assets, but they can buy ETF stocks without a problem. With a theoretical bitcoin ETF, they would gain exposure to the asset’s returns, with the transparency and protection that the regulated ETF market brings with it.

It’s important to highlight that those investors do not hold the real asset. Their stocks directly follow its price, though. By not holding the assets, these ETFs remove the need for self-custody. So far, in the US, only future-based bitcoin ETFs exist. The reason, according to Gary Gensler, is that, unlike the real asset, bitcoin futures are regulated by the Commodity Futures Trading Commission or CFTC.

With that being said, let’s start our Top cryptocurrency ETFs’ exploration with the original bitcoin futures ETF and conclude with Tetraguard, an ETF-like basket of high-performing wrapped coins that - unlike its peers - shares transaction fees with its holders, rather than with exchanges.

BITO, the ProShares Bitcoin Strategy ETF

On its website, the company defines the product as, “the first U.S. bitcoin-linked ETF offering investors an opportunity to gain exposure to bitcoin returns in a convenient, liquid and transparent way. The Fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts.” And they quickly let everyone know that “The fund does not invest directly in bitcoin.”

Other characteristics of the product:

• Bitcoin futures are not the same as bitcoin, the asset. Expect BITO to disconnect and decouple from the spot price of bitcoin.

• Believe it or not, the bitcoin futures market deals with a bigger volume than the bitcoin spot market.

• The BITO’s fees are just 1% annually, an almost unbeatable price.

• Future contracts expire. The BITO ETF has to constantly buy new contracts and probably sell the expiring ones at a lower price than the one they paid.

• The BITO ETF is currently enjoying its first-to-market status, but that privilege could end soon. Newer and cheaper products might flood the market at any point, leaving BITO in the cold.

In any case, for investors that aren’t able or simply don’t want direct bitcoin exposure, the ProShares Bitcoin Strategy ETF provides an excellent option.

BITW, the Bitwise 10 Crypto Index

According to their website, the BITW is “a secure way to get diversified exposure to bitcoin and leading cryptocurrencies. The Fund seeks to track an Index comprised of the 10 most highly valued cryptocurrencies, screened and monitored for certain risks, weighted by market capitalization, and rebalanced monthly.” The BITW is not exactly an ETF, it’s “a publicly-traded trust, which functions under the current legal framework to offer crypto fund solutions to all investors.”

Other characteristics of the product:

• The fund came to market in the latter half of 2020.

• The BITW holds ten different cryptocurrencies in its vaults. To pick the ones they buy, “the methodologies take into account crypto-native factors surrounding liquidity, security, regulatory status, market representation, network distributions, and more to ensure they fully capture the investable crypto asset market opportunity,” according to their website.

• The company claims to rebalance its more valuable assets every month and to monitor the market 24/ 7 for unexpected events.

• They charge a simple management fee that ranges from 0.85% to 3.0%.

• Their biggest holdings by far are Bitcoin at 67.7% and Ethereum at 23.1%

• The other eight stand at less than 3% and are: Cardano, Solana, Polkadot, Avalanche, Litecoin, ChainLink, Polygon, and the infamous Bitcoin Cash.

• The product is designed to provide exposure to 80% of the crypto market.

XBTF, the VanEck Bitcoin Strategy ETF

According to the company’s website, “the VanEck Bitcoin Strategy ETF (XBTF) seeks capital appreciation by investing in bitcoin futures contracts. The Fund is actively managed and offers exposure to bitcoin-linked investments through an accessible exchange traded vehicle. The Fund does not invest in bitcoin or other digital assets directly.” So, it’s very similar to the BITO.

Other characteristics of the product:

• The fund’s intention is to manage that the total value of the bitcoin that they are exposed to is equal to the total assets of the funds.

• This fund only invests in bitcoin futures, so it’s not diversified at all.

• Their focus is to long bitcoin and to short the US dollar.

• VanEck charges a flat management fee of 0.65%

• As is the case with BITO, the XBTF team “will “roll” out of one futures contract as the expiration date approaches and into another futures contract on bitcoin with a later expiration date.”

• The company doesn’t mince words when it comes to possible risks. “The value of Bitcoin and the Fund’s Bitcoin Futures holdings, could decline rapidly, including to zero. You should be prepared to lose your entire investment.”
   

BITS, the Global X Blockchain and Bitcoin Strategy ETF

According to their official website, the product “is an actively-managed fund that seeks to capture the long-term growth potential of the blockchain and digital assets theme. The Fund takes long positions in U.S. listed bitcoin futures contracts and invests, directly and/or indirectly, in companies positioned to benefit from the increased adoption of blockchain technology. BITS will not invest directly in bitcoin.”

Other characteristics of the product:

• It offers exposure to blockchain companies by investing in other ETFs that contain those stocks. Among those is the Global X blockchain ETF, which specializes in Bitcoin mining.

• BITS is classified as a "non-diversified" fund. That means it will invest a larger percentage of its assets in a smaller number of issuers.

• The management fees are 0.65%

• The fund also holds United States Treasury Bills and cash.

• “Under normal circumstances, the Fund will invest at least 25% of its assets in Blockchain Companies and will have notional exposure to Bitcoin Futures equal to at least 20% of the total assets of the Fund.”

• The investment policy is not set in stone. To change it, though, “requires 60 days prior written notice to shareholders.”

• At the time of writing, the BITS holds $6.76M in net assets.

• In the project’s documentation, they also warn, “the value of an investment in the Fund could decline significantly and without warning, including to zero. You should be prepared to lose your entire investment.”

TETRA, Tetraguard Crypto, an ETF-like decentralized token basket

This one might be the most advanced product of the lot. However, it doesn’t trade in stock exchanges like the others. It’s purely digital, with an automated market maker available on its website. Tetraguard is described as “a secure way to get diversified exposure to Bitcoin, Ethereum and PaxG. The Token holds three of the most highly valued cryptocurrencies. The decentralized ETF provides the security and simplicity of a traditional crypto investment vehicle, with a fee token (Quadron) that earns rewards.”

This is a newer product, so there’s no reliable data about it available yet.

Other characteristics of Tetraguard:

• Bitcoin and Ethereum are obvious choices, and Quadron is the system’s native token. However, why use PAX G? Because it “represents the most liquid gold backed stable coin.”

• All of the transaction fees generated inside the system, plus all of the rewards that the staked ETH gets, are “shared on a pro-rata basis among all token holders.” That’s right, TETRA holders earn a yield.

• The Tetraguard smart contract runs over the Ethereum blockchain and it has been audited by ConsenSys.

• No central authority has access to the funds. The smart contract distributes the earnings automatically.

• Since the system runs on Ethereum, all of the non-native assets are wrapped. Each TETRA consists of: 1 WBTC, 13 ETH, 26 WPAXG, and 23632 QUAD.

• The previously mentioned system fees are a simple 1% every time a TETRA is created, liquidated, or canceled.

According to the company behind the product, Tetraguard was “built on 5 key principles:”

Transparency; being Programmable, Decentralization, Censorship Resistance, and Game Theory Compatible.

Here, a disclaimer is necessary: SmartBlocks is a token holder of the Quad token, and the author is a control individual of SmartBlocks. As such that entity and individual may benefit from any price appreciation, as well as any known or unknown affiliates at this time. 

And that’s that. These are your current options. Choose wisely.

Author Bio

Mark Fidelman, founder of SmartBlocks.