Cryptocurrency has been a buzzword for quite some time now. Despite the challenges that the industry has faced, its allure has not dwindled. However, self-custody of crypto assets can be challenging for some investors. This is where exchange-traded funds (ETFs) come in. ETFs can potentially provide greater transparency and regulation compared to regular crypto, and they can also be held in tax-sheltered accounts. In this article, we'll explore best of the best cryptocurrency ETFs to buy in 2023.
ProShares Bitcoin Strategy ETF (ticker: BITO)
The ProShares Bitcoin Strategy ETF provides exposure to Bitcoin via futures contracts. BITO tracks the price of future-dated CME Bitcoin index futures and charges a 0.95% expense ratio. It is important to note that BITO does not track the actual spot price of Bitcoin. However, BITO's share price has been very closely correlated with Bitcoin's historically, making it a good proxy for exposure.
VanEck Bitcoin Strategy ETF (XBTF)
Another Bitcoin futures ETF available to investors is XBTF. The ETF holds most of its portfolio in U.S. Treasury bills, which are used as collateral for monthly CME Bitcoin futures. XBTF has lower assets under management (AUM) of $31.4 million but also has a lower expense ratio of 0.65%. A notable feature of XBTF is its C-corp structure, which can potentially offer better tax-efficiency.
Global X Blockchain ETF (BKCH)
Investors who aren't comfortable with owning derivatives can opt for BKCH, which provides exposure to the stocks of companies involved in the cryptocurrency industry. BKCH currently holds a concentrated portfolio of 24 global cryptocurrency equities involved in digital asset mining, blockchain transactions, blockchain hardware, and blockchain integration. Notable holdings include Block Inc. (SQ), Coinbase Global, Inc. (COIN), and Silvergate Capital Corporation (SI). BKCH provides a high enough correlation with Bitcoin and other cryptocurrencies, but it won't track their prices closely.
ARK Innovation ETF (ARKK)
ARKK is not strictly a cryptocurrency ETF but rather a broader technology ETF. Nevertheless, it has significant exposure to crypto assets. ARKK invests in companies involved in disruptive innovation, including next-generation internet, genomics, and fintech innovation. Notable holdings include Tesla Inc. (TSLA), Roku Inc. (ROKU), and Square, Inc. (SQ). As of Dec. 31, 2022, ARKK's exposure to Bitcoin was 2.3%, Ethereum was 2.2%, and Coinbase was 4.4%. ARKK charges an expense ratio of 0.75%.
Amplify Transformational Data Sharing ETF (BLOK)
BLOK is another ETF that provides exposure to blockchain technology. The ETF invests in companies involved in the development and deployment of blockchain technologies, including cryptocurrencies, digital ledgers, and smart contracts. As of Dec. 31, 2022, the top holdings in BLOK were MicroStrategy Incorporated (MSTR), Square, Inc. (SQ), and Coinbase Global, Inc. (COIN). BLOK charges an expense ratio of 0.70%.
Bitwise Crypto Industry Innovators ETF (BITQ)
BITQ is a new ETF that launched in December 2021. The ETF invests in companies that are involved in the development, research, and application of blockchain technology and cryptocurrencies. BITQ's top holdings include Coinbase Global, Inc. (COIN), Square, Inc. (SQ), and Marathon Digital Holdings, Inc. (MARA). BITQ charges an expense ratio of 0.85%.
VanEck Digital Transformation ETF (DAPP)
DAPP is another actively managed ETF that invests in companies involved in digital transformation, including blockchain technology and cryptocurrencies. The ETF has a diversified portfolio of 50 companies, including established tech giants like Microsoft and IBM and emerging companies in the crypto space like Coinbase and Silvergate Capital. Additionally, the ETF holds positions in companies involved in other emerging technologies like cloud computing, cybersecurity, and artificial intelligence. The expense ratio for DAPP is 0.45%.
investing in cryptocurrencies can be a daunting task, but ETFs can provide a way for investors to gain exposure without the technical know-how required for self-custody. The best ETFs listed here can offer exposure to the cryptocurrency market through different strategies, whether it's through futures contracts, equities, or a combination of both. As with any investment, it's important to conduct your due diligence and consult with a financial advisor before making any investment decisions.
Frequently Asked Questions (FAQs):
What is the best cryptocurrency ETF to buy?
The best cryptocurrency ETF to buy depends on the investor's goals and risk tolerance. The ProShares Bitcoin Strategy ETF (BITO) and the VanEck Bitcoin Strategy ETF (XBTF) are two of the most popular ETFs that offer exposure to Bitcoin through futures contracts. The Global X Blockchain ETF (BKCH) provides exposure to companies involved in the cryptocurrency industry, while the Ark Innovation ETF (ARKK) and the VanEck Digital Transformation ETF (DAPP) offer exposure to a diversified portfolio of companies involved in various emerging technologies, including blockchain and cryptocurrencies.
Can ETFs be held in a tax-sheltered account?
Yes, ETFs can be held in tax-sheltered accounts like a Roth IRA or a 401(k). This can potentially offer tax advantages to investors.
What is the expense ratio of cryptocurrency ETFs?
The expense ratio of cryptocurrency ETFs varies depending on the ETF. The ProShares Bitcoin Strategy ETF (BITO) has an expense ratio of 0.95%.
In summary, cryptocurrency ETFs are an excellent option for investors looking to gain exposure to the digital asset market. With the variety of ETFs available, investors can choose one that aligns with their investment strategy and risk tolerance. By investing in a crypto ETF, investors can avoid the complexities of self-custody and trading on exchanges. Additionally, ETFs offer greater transparency and regulation compared to regular crypto assets. While the crypto market can be volatile, investing in a diversified portfolio of crypto ETFs can potentially mitigate risk and provide long-term growth opportunities.
