The abbreviation ETF stands for Exchange-Traded Funds. These are funds that are traded on the stock exchange.
An ETF is a collection of assets that can be bought and sold on the stock market. This works the same as how investors invest in a company's stock.
ETFs are investment funds that track a particular index, such as the AEX or S&P500. For example, if you buy an ETF on the AEX, this means that you invest in the largest twenty-five Dutch companies at once. This is easier, faster and cheaper than buying securities from each individual company listed on the AEX.
There are hundreds of thousands of ETFs worldwide that fit into different asset classes. For example, you can find ETFs that are active in the stock market, but there are also funds that are in bonds or commodities. Other funds, in turn, are purely focused on technology or have a portfolio of assets related to a specific theme, such as sustainability.
ETF funds can be managed actively or passively. Funds that traded more actively with the underlying assets can achieve higher returns (of course, this is no guarantee). Actively managed funds therefore come at a different cost. Funds that only follow an index are usually cheaper.
A crypto ETF tracks the price of one or more cryptocurrencies. With an ETF, you can therefore invest in the value of Bitcoin or a collection of different cryptocurrencies without purchasing them separately. An ETF is probably the easiest way to invest in funds made up of different cryptocurrencies with just a few trades.
A Spot ETF is an ETF that is backed by physical possession of the digital asset (s). In the case of crypto, these funds therefore actually own the coins that are invested in. In fact, it's a way to buy crypto without having to be too much at the controls yourself. The fund buys on your behalf and with your money. As the market value of the coins in the fund increases, the value of the ETF increases proportionally. There are, however, costs associated with the service for compiling the portfolio.
Aside from costs, the biggest disadvantage of these ETFs is that trading is only possible during the hours that the exchange is open. Due to market volatility, it may happen that the price has fallen a lot before you can sell your ETF. And vice versa, you may have to wait until Monday afternoon to buy an ETF, while the price on the previous Saturday was much cheaper.
In these types of ETFs, the shares in the fund are not based on holding crypto, but on futures contracts. These are futures contracts that specify the price and date for buying or selling a currency. With the help of futures contracts, investors may be able to profit from both ascending and downward market trends: there is more or less speculation about a possible rise or fall in the price. Futures-backed ETFs were initially designed for assets whose physical possession would be inconvenient, such as oil, gold, and grain.
Futures are highly complex investment products that involve extra risk. It is important that investors are aware of these risks before investing in a Futures ETF. Futures funds do not own the underlying assets and sometimes use leveraged structures that risk liquidating the entire position.
The costs associated with investing in Futures ETFs are usually higher than those associated with investing in an ETF from a fund that actually holds the crypto.
This type of ETF allows you to invest indirectly in crypto and blockchain technology with shares of related companies. This includes miners, crypto exchanges, hedge funds or companies that own a lot of Bitcoin, such as MicroStrategy. This market is less volatile and depends on how the crypto industry will develop. A hypothetical example: Mining company X knows how to reduce mining costs by tapping into an economical way of extracting energy. This leads to a better result for the company, which increases the demand for the shares. These stocks are becoming more valuable due to the market forces of supply and demand. Investors who arrived on time are making a profit due to the rise in the price.
