Cryptocurrency ETF

Cryptocurrency ETF

A cryptocurrency ETF works, in theory, like any other ETF. While most ETFs track an index or a basket of assets, a cryptocurrency ETF would track one or more digital tokens. Like other ETFs, digital token ETFs would trade like common stocks on an exchange, and they would be subject to changes in price throughout the day as investors buy and sell.

In order for a cryptocurrency ETF to work properly, it will need to own the underlying assets that it tracks; the ETF would have to own a commensurate stake of digital tokens. The ownership of these tokens would be divided into shares, and investors in the ETF would indirectly own those tokens. ETF investors would then receive a proportion of the profits generated by those underlying assets.As of October 2019, there are no crytocurrency ETFs listed for trade in the United States. Up to this point, the U.S. Securities and Exchange Commission (SEC) has indicated that it will not approve cryptocurrency ETFs until the crypto currency markets exhibit stability and security. The the agency has repeatedly and consistently indicated that its mission is designed to prevent fraudulent or manipulative acts or practices and to protect investors, and that they were concerned about fraud and manipulation of bitcoin, particularly since bitcoin trading is conducted in a largely unregulated offshore market. Still, that has not prevented many different parties from attempting to launch digital currency ETFs.
Several groups have submitted proposals to launch a bitcoin ETF in the U.S., including the Winkelvoss brothers, Bitwise Asset Management (in conjunction with NYSE Arca), and Van Eck/SolidX.

The closest is a fund known as the Bitcoin Investment Trust (GBTC). The trust acts like an ETF in many ways, it owns bitcoins on behalf of investors and allows them to trade in shares of the trust. owever, the sponsor of the fund, Grayscale Investment Trust, charges annual management fees of 2% of the fund’s assets, a price point significantly higher than most other ETFs. Furthermore, as the first trust of its kind, GBTC has experienced some odd fluctuations in price relative to the changes in value of bitcoin. While one would expect GBTC to be correlated with the price of bitcoin, this has so far not always been the case. Overall, with a high expense ratio and lofty minimum investment, GBTC is not available to the mainstream investor as of yet.

(Source: Investopedia, Coindesk, U.S. Securities & Exchange Commission)