Crypto ETFs are exchange-traded funds. Basically, the ETFs track the value of the underlying crypto assets but they trade on traditional market exchanges. This offers crypto enthusiasts an opportunity to trade in crypto without having to actually learn using a cryptocurrency exchange. However, gone are the times when as a crypto exchange owner you would build your own Bitcoin Exchange website that would be difficult to use for a new crypto trader. Nowadays, crypto exchanges are designed to offer an intuitive experience from the start.
Coming back to crypto ETFs, they also mean a lot more to the crypto world. That’s because they bridge the gap between traditional markets and the crypto markets. Interestingly, a fair bit of demand for crypto ETFs from the institutions has been noticed recently.
How does crypto ETF work?
In short, crypto ETFs are units that represent crypto assets. One crypto ETF unit is equal to 1 unit of that crypto asset. For example, the value of 1 Ethereum ETF is equal to 1 ETH in the crypto market. Crypto ETFs can be bought on a traditional stock exchange like NYSE through a broker and a trading account. Someone who trades an ETF will have to pay the brokerage fee and fund management charges.
What are the benefits of investing in Crypto ETFs?
For a new crypto investor, dealing with a crypto wallet or a crypto exchange can be a daunting task. While you are wondering how to build your own cryptocurrency exchange, the investors are also exploring a less direct way to buy a crypto ETF. Apart from simplifying crypto buying, ETFs offer the following advantages to the investors:
Unlike crypto assets, crypto ETFs are managed by fund managers who have years of experience in managing portfolios. As it is a known fact that the crypto market is highly volatile, it could be really challenging for a new trader to keep a track of the price of assets and this could lead to potential losses.
Crypto ETFs are generally backed by multiple crypto assets. As a result, the fund manager can help investors buy and hold multiple assets via a single trade. This also lowers the cost incurred by the investor as he is not required to conduct multiple trades. It also simplifies the tracking of portfolio value for the investor.
A crypto EFT can be designed to hold a number of crypto assets under one single umbrella. This helps in the instant diversification of investors’ funds.
Cryptocurrency exchanges and wallets are sometimes prone to security glitches. To keep his/her funds secure, an investor needs to take more precautions like storing his assets in a cold wallet and protecting his private keys. In the case of a crypto ETF, the protection of your assets is the liability of the broker. Thus, it frees the investor from the burden of managing the security of his crypto assets. Moreover, if you are planning to build your own Bitcoin exchange website make sure all the security aspects of a crypto exchange are met.
A new crypto trader or institutional investor might find it difficult to keep a close watch on the price movements of crypto assets. As a result, their investments are exposed to higher risks. With crypto ETFs, the investors shift their risk and gain better returns on their investments.
Why are crypto ETFs not popular yet?
Regulators are yet to approve crypto ETFs like Bitcoin ETF. Thus, it limits the scope of investment for the interested investors. There are a couple of other reasons why investors refrain from buying crypto ETFs:
Lack of ownership
Crypto assets are actually a hedge against fiat as it is independent of being controlled by central banks. However, by buying a crypto ETF, an investor has to give up the benefits of decentralization offered by the underlying crypto asset. Also, with a crypto ETF, the investor basically just owns an agreement, not the actual asset.
Crypto ETFs are managed by fund managers who generally charge a significant amount of fee to manage the ETFs.
A crypto ETF might have multiple crypto assets holding under it. As a result, even when a particular asset gains value, the overall ETF might not show proportional gains.
Wrapping it up
Crypto ETFs might sound like a perfect way to invest in the crypto market, especially for the new crypto investors and institutional investors. While it does not expose the investors’ funds to the volatility of the crypto market, it also limits their opportunities.
That is why most crypto traders still prefer investing in crypto assets using a crypto exchange. If you are wondering how to build your own cryptocurrency exchange that is simple, intuitive, and fast enough to meet the demands of the market, Antier Solution’s expertise is just a call away.