Why Are There No Crypto EFTs and What Are the Alternatives?


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As more people look to cryptocurrency as a possible investment, it’s no surprise that people are also looking for alternative ways to invest in them. One way that people hope to do that is through crypto ETFs (exchange-traded funds).

Bitcoin and other cryptocurrencies have become increasingly popular investments in recent years. Recent data shows that about 14% of the U.S. adult population now owns cryptocurrency, and that number is expected to double in the next year. Additionally, many cryptocurrencies saw their values spike in 2021, leading more investors to become curious.

Is There a Crypto or Bitcoin ETF?

crypto etfAt this time, no cryptocurrency or bitcoin ETFs exist in the U.S. The Securities and Exchange Commission (SEC) approves these types of investments, and so far they have not done so.

But bitcoin ETFs exist elsewhere. Bitcoin ETFs are available in Europe, and countries like Canada and Brazil have also approved them. U.S. investors can technically invest in these Crypto ETFs, but it requires opening a foreign securities account and paying foreign currency transaction fees and exchange rates.

Why Are There No Crypto ETFs?

While there’s been plenty of excitement around bitcoin and other cryptocurrencies in the past couple of years, that excitement hasn’t extended to the SEC. The SEC has remained publicly skeptical about cryptocurrencies. And it recommends that investors take caution before investing in them.

Ultimately, it’s up to the SEC whether or not to approve cryptocurrency ETFs in the U.S. The commission currently has a proposal before it to allow a bitcoin ETF. But it has so far neither approved nor denied that proposal.

Is a Bitcoin ETF a Good Investment?

Crypto ETFIt’s impossible to make a blanket statement about whether bitcoin ETFs — or any investment for that matter — is a good investment. Each investor has different goals, different risk tolerance, and different preferences.

On the one hand, bitcoin and other cryptocurrencies have seen incredible gains in recent years. The price went from less than $1,000 in 2017 to a high of more than $60,000 in early 2021. While no other cryptocurrency has seen quite as much success, many of them have seen similar price surges in recent years.

A bitcoin or cryptocurrency ETF could combine the benefits of these currencies with a more diversified approach. For someone interested in investing in cryptocurrencies, investing in an ETF rather than purchasing the asset itself can help mitigate some of the risks of their portfolio.

On the other hand, bitcoin and other cryptocurrencies are still considered speculative investments. The general advice is that you should invest in them only with money you can afford to lose. Look at bitcoin as an investment, for example. Sure, it hit a high of more than $60,000 in early 2021. But it also quickly saw its price plummet the following months. It lost half of its value quickly and has yet to recover.

And because bitcoin has been around for only about a decade, we can’t quickly look to historical returns to see if it’s likely to recover, as we can with the stock market.

Should I Invest in the Cryptocurrency ETF or in the Coin Itself?

Bitcoin ETFYou may find yourself wondering: Why invest in a cryptocurrency ETF when you can invest in the cryptocurrency itself?

Buying bitcoin vs. investing in a bitcoin ETF offers some advantages.

  1. First, you actually own the crypto you purchase.
  2. Second, owning the cryptocurrency gives you more freedom of what to do with it.
  3. You pay lower fees by simply purchasing the cryptocurrency.

That being said, ETFs offer many advantages over owning the individual cryptocurrency, which is why many investors are eager to see them approved.

  1. First, ETFs are simply easier to buy and sell than cryptocurrencies. ETFs can be purchased through a traditional brokerage account and don’t require the investors to set up a digital or cold wallet to store their keys.
  2. Second, ETFs allow investors to diversify their portfolios with just one investment. Suppose you bought $10,000 worth of a single cryptocurrency. If that coin crashes tomorrow, you’ve lost your investment.

But what if you invest that $10,000 across many cryptocurrencies in the form of an ETF? If one of those coins crashes, you’re likely to lose some of your money but not all of it unless all of the cryptocurrencies crash.

When Will a Bitcoin ETF Be Approved in the U.S.?

It seems likely that the bitcoin ETF will eventually be approved and widely available in the U.S. But it’s impossible to know exactly when that will happen. Originally, the SEC was due to either approve or deny the ETF by June 26, 2021. However, on June 16, it stated that it would once again delay a decision on the issue.

As more and more countries approve bitcoin ETFs, one might speculate that approval is coming sooner rather than later. There’s some speculation that the final approval may not come until 2022, but no one can say for certain.

Other Options to Gain Exposure to Cryptocurrencies

While ETFs for bitcoin and other cryptocurrencies aren’t available in the U.S. yet, there are still other ways to gain exposure to cryptocurrencies in your portfolio without investing in them directly.

Blockchain ETFs

blockchain primerA blockchain ETF isn’t quite the same as a cryptocurrency ETF, since the securities it tracks aren’t cryptocurrencies. However, these ETFs track companies involved in the blockchain technology that bitcoin and other cryptocurrencies rely on.

Some blockchain ETFs invest in companies directly involved in blockchain technology. Other blockchain ETFs invest in futures and options pegged to the performance of bitcoin and other cryptocurrencies.


Grayscale Trusts

Grayscale Trusts Grayscale is an investment company that specializes in digital currency investing and asset management. It offers a variety of trusts for cryptocurrencies like bitcoin, ethereum, litecoin and more.

Grayscale trusts combine a traditional investment vehicle with cryptocurrencies. This allows investors to gain exposure to these currencies in their portfolios. The Grayscale Bitcoin Trust has over $22 billion in assets under management as of June 29, 2021.

The Grayscale Bitcoin Trust provides an alternative for those who wish to invest in a bitcoin ETF. But there are some significant downsides. First, the trust charges an annual sponsor’s fee of 2%. Second, the trust requires a minimum investment of $50,000.

The Bottom Line

Until the SEC finally approves a bitcoin ETF, you won’t be able to easily purchase one in the U.S. It’s expected that one will be approved eventually — it’s probably just a matter of when. Until then, you can look to alternatives such as blockchain ETFs and Grayscale trusts to gain exposure to cryptocurrencies in your portfolio.



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