If you ever wanted to invest in the future of cryptocurrency but don't want to purchase cryptocurrency itself, try looking in to cryptocurrency mutual funds or even ETFs. These are a collection of stocks/bonds and assets based on companies that invest in bitcoin or other blockchain technology.
The future of finance lies within cryptocurrency and other digital assets and an ETF or mutual fund is a great way to invest in the industry without putting all of your eggs in one basket.
If you are looking for a good index fun to invest in cryptocurrency with, look no further, Cryptoryancy has reviewed the top 5 crypto funds for 2022.
Bitcoin Strategy Futures by ProShares (BITO)
Bitcoin Strategy Futures by ProFunds is an interesting Cryptocurrency ETF in that it holds Bitcoin Futures rather than the actual cryptocurrency.
The most essential thing to know is that BITO does not invest in Bitcoin itself.
The futures contracts that BITO invests in are regulated by the Commodity Futures Trading Commission. These contracts are only traded on the Chicago Mercantile Exchange and are subject to the rules of the CME.
A good index fun to invest in if you want exposure to Cryptocurrency and Blockchain without investing directly into one.
Bitwise Crypto Industry Innovators ETF (BITQ)
The Bitwise Crypto Innovators 30 Index is tracked by this index fund.
To be included in the index, a firm must earn at least 75% of its revenue from the cryptocurrency industry. Either that or they must have more than 75% of their net assets are Bitcoin or some other liquid cryptocurrency or digital asset.
As you can tell from the benchmark name, there are 30 holdings considered cryptocurrency innovators that are included in BITQ.
This equity blockchain ETF is one of the most appropriate choices for someone who truly believes in the future of cryptocurrency innovation.
Grayscale Bitcoin Trust
The Grayscale Bitcoin Trust (GBTC) is an ETF-like investment that isn't technically an ETF, or a mutual fund.
Instead, it's a closed-end grantor trust, which means that it issues a predetermined number of shares when it goes public. Then they trade those shares "over-the-counter (OTC).
The price of Bitcoin is tracked by the CoinDesk Bitcoin Price Index, and GTC shares are designed to track the price of Bitcoin.
GBTC is a Bitcoin-based ETF that holds actual cryptocurrency and trades each share at around $1,200. Unlike other Bitcoin ETFs, GBTC has real Bitcoin in its portfolio and sells each share for about 0.0009 BTC. The Global Bitcoin Investment Trust, which trades under the ticker GBTC, has a total value of $41.3 billion and a 2% expense ratio.
Valkyrie Bitcoin Strategy ETF (BTF)
Before BTF, the Bitcoin Investment Trust (BITO) debuted on the NYSE on May 6. The Nasdaq soon followed with the debut of the Valkyrie Bitcoin Strategy ETF. BTF is similar to the BITO fund in that it does not invest in Bitcoin. At least, not directly.
BTF actually holds front-month Chicago Mercantile Exchange Bitcoin futures. The firm has already launched trusts for other well-known cryptocurrencies on foreign exchanges, and it expects to release additional U.S.-listed crypto ETFs in the following months. The funds has almost reached $60 million in assets and has a 0.95% expense ratio. The BTF ETF is less liquid and much smaller than the BITO, but that doesn't mean it's not a good choice.
Vanguard Personal Advisor Services
Vanguard offers personal advisor services and can definitely help out if you need a custom portfolio of ETFs focused around cryptocurrency and blockchain.
Alternatively, you can look into investing in individual companies instead of a fund or ETF, they have an expense ratio of 2.09%.
Why Invest in Cryptocurrency Mutual Funds?
If you're thinking of investing in cryptocurrency, you are not alone. A lot of would-be investors are excited about this new asset class.
Who wouldn't be?
Imagine buying a crypto coin at a fraction of a penny only to see its value blow up to several dollars or even several hundred dollars.
Thanks to Bitcoin, this scenario is no longer speculation or theory. It's very much real.
Please understand that this is not just happening to Bitcoin. It's also happening to other cryptocurrencies and blockchain technology that could be mined or staked starting at a very low price.
People making 10x, 100x, or even 1000x are not uncommon in the cryptocurrency space. Given this reality, more investors are investing in crypto.
The Sad Reality
There's a tremendous amount of hype when it comes to crypto trading and investing in general. Unfortunately, a lot of it is smoke, and people end up picking the wrong coins or tokens to invest in.
And they get burned. At best, their investment goes nowhere.
Maybe it tracks sideways for a very long time. Or, it goes down in value to maybe half or even a fraction of what they put in.
Worse yet, investors who bought tokens only to suffer from "rug pools." Overnight, the liquidity for the coins they're holding disappears. It was all a scam.
This is enough for a lot of people to give up on cryptocurrency trading.
The good news is that you don't have to roll the dice to invest in this exciting new asset class. This is where ETFs and cryptocurrency mutual funds come in.
Cryptocurrency Mutual Funds and ETFs
A cryptocurrency mutual fund, at its most basic, is just like a regular mutual fund. Mutual funds involve an experienced manager buying different assets in the hopes that their value will go up.
An ETF (Exchange-Traded Fund) is a collection of stocks and other assets like a mutual fund but, as the name implies, it can be traded through exchanges like common stock.
Instead of doing your own research and buying single stocks, an ETF or a mutual fund’s manager would buy many different stocks so that if some go up, it would offset losses from other stocks going down.
The idea is that the manager would be experienced enough to pick more winners than losers. A cryptocurrency mutual fund applies this "pooled buying" approach to cryptocurrencies and cryptocurrency based companies.
The same dynamics are at play. You benefit from volume buying. You also leverage the experience of the fund manager.
Mutual Funds Are All About Managing Risks
We know that there is no such thing as a completely risk-free investment. But when you get into a very volatile investment asset like cryptocurrency, mutual funds go a long way in reducing your overall risks.
Thanks to the experience of the fund manager, there's a good chance that your investment will go up with everything else being equal. You also temper and offset your risks because of the diversified portfolio cryptocurrency mutual funds focus on.
Mutual Funds Help Crypto Investors Break into the Market
It's very tempting to think that all cryptocurrencies are just like Bitcoin. This is not true. There's quite a big difference between Bitcoin and Ethereum.
There are also newer blockchain technologies that have different features from the technology underlying Bitcoin and Ethereum.
It's important to keep this in mind because newbie crypto investors tend to overlook this. They just focus on the price with no underlying appreciation or even understanding of the technology behind these cryptocurrencies.
While it's true that the coins produced by these blockchains can be bought and traded, it's also important to understand the underlying supply and demand as well as practical applications behind the technologies that underly these cryptocurrencies.
It's very easy to get confused. As blockchain technology continues to evolve at a very rapid pace, you stand to lose a lot of money if you don't know which is which.
When you break into the cryptocurrency trading world through a mutual fund that specializes in this type of asset, you're paying a professional manager to fully understand this space. This enables investors who would otherwise be confused by the complexity of this asset class to reduce their risks levels and benefit in the long run.
Who Should I Invest?
Two words: professional management. Just like it's conventional counterpart, you leave the trading to the expert hands of a fund manager, so you don’t have to stress about it.
If you’re new to crypto, it would be a good idea to try it out through this type of investment. Learning crypto can be pretty overwhelming for rookie investors. And besides, choosing the right exchanges to transact with can leave you vulnerable to scammers.
Crypto mutual funds also increase your investing power. It’s a cost-effective option where you can potentially gain higher dividends. Otherwise, you would miss the opportunity because the high capital amount would have been too much for an individual investor to come up with.
Are There Any Risks?
There is no such thing as a guaranteed investment. Even if your mutual fund is managed by the most experienced and brightest manager, they cannot fully anticipate market developments.
The global crypto market is known for its volatility. It can spike up very quickly and instantly crash. This has happened several times.
Also, many cryptocurrencies experience intra-day volatility.
That's right! Within 24 hours, the value of a crypto can go up more than 10% and crash by the same amount.
This is just the nature of this type of investment class because the whole market is still under development. We are far from a settled and somewhat predictable investment environment. There are lots of opportunities for quick and massive gains.
By the same token, there's also a tremendous amount of risks because prices can crash and remain low for a long period of time before abruptly spiking up.
The Final Word on Crypto Mutual Funds
Despite the risks involved and the fees charged by mutual funds, cryptocurrency funds still stand as one of the best ways for newbie or less experienced investors to enter the exciting world of crypto assets.
This market is still far from being fully developed and stabilized, and using the tried-and-proven mutual fund format to reduce your risks is definitely a good idea.