ETF stands for exchange-traded fund, and it’s basically a basket of assets that you can buy and sell on a stock exchange. Traditional ETFs might track things like the S&P 500, gold prices, or even entire sectors like tech or healthcare. Crypto ETFs do the same thing, but instead of tracking stocks or commodities, they track a group of cryptocurrencies. For example, a Bitcoin ETF would let you invest in Bitcoin without actually owning it. You don’t need to worry about setting up a digital wallet, managing private keys, or figuring out how to store your crypto. Instead, you buy shares of the ETF, through your brokerage account, just like you would with any other stock. It’s perfect for people who want to get into crypto, but find the whole process a bit intimidating, or aren’t interested in knowing how to do it themselves.
Otherwise, they work exactly like typical stocks. So let’s say you buy shares in a Bitcoin ETF, the value of those shares will rise and fall with the price of Bitcoin. If Bitcoin goes up, your ETF shares go up. If Bitcoin crashes, you’re in down town.
One of the cool things about crypto ETFs is that they’re traded on traditional stock exchanges, so you don’t need to set up wallets or new accounts; none of that. From this perspective, they’re super accessible, and appealing for those already familiar with the classic stock setup.
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Now you might be thinking, “ok great, but I know how crypto works and I don’t need an ETF”, and that’s completely fair enough. But don’t underestimate the amount of people, and more specifically the amount of money, that doesn’t know how crypto works. And that’s what makes them a big deal! Up until recently, there’s been a lot of people on the sidelines, not getting into crypto. For those people, crypto might have seemed too hard, too unfamiliar, or too scammy to be worth investing in. Now, with ETFs, they don’t even need to think about it.
That’s due in part to the fact that they’re regulated. One of the biggest concerns about crypto is the lack of regulation, which is completely reasonable. ETFs are subject to oversight by agencies like the SEC (in the US), which provides that reassurance for these investors that previously, didn’t want to take the risk. Not just retail investors either, but big players like hedge funds and pension funds have been hesitant to dive into crypto because it wasn’t regulated properly. Crypto ETFs give these institutions a way to invest in crypto without taking on the risks associated with direct ownership.
So, what does all this mean for the crypto market? For starters, it leads to increased adoption. With more people getting involved, this could lead to a surge in demand, driving up prices for coins within these ETFs. It could also bring more stability to the market, because the involvement of institutional investors can help smooth out some of the wild price swings we’ve seen in the past.
The approval of Bitcoin ETFs was a huge milestone, opened up the world to the concept and now others are able to follow suit. Now we have them for Ethereum, and there’s been dozens of XRP ETF proposals recently too. But this is likely just the beginning. Right now though, most crypto ETFs focus on Bitcoin and Ethereum.
Now, should you care? In a word, yes. Not because you’re the kind of person who wants to invest in an ETF necessarily, but because they’re a sign that there could be a big uptick in inflows to a particular crypto, if it gets its ETF approval. And this is not some ‘trust me bro’ economics either, but a really solid indicator that price action is on the horizon. Let’s say you’re holding a big bag of $MEOW, and it gets approval for an ETF - suddenly people start buying that ETF, the price of $MEOW goes up, your investment is looking pretty good now! It’s not the be all and end all, and just because a coin gets ETF approval doesn’t guarantee it’s going to the moon overnight, but it’s something worth paying attention to at the very least.
Not only that, but ETF approvals don’t just happen to any crypto. The companies behind these ETF submissions are doing a lot of due diligence, making sure everything is above board and that these projects have legs. Another reason you should be paying attention to them!
So there you go, crypto ETFs. You might not necessarily want to invest in them yourself, but they’re a big move forward for our industry, and they’re a big, big clue when you’re considering what to invest in next.