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Crypto ETFs As a Low Cost, Low-Risk Method to Invest in Cryptocurrencies

06 Jun 2022 By : Sanskar Ranka
Southeast Asia’s Lar

Crypto ETFs As a Low Cost, Low-Risk Method to Invest in CryptocurrenciesCryptocurrency Exchange Traded Funds or ETFs have made crypto trading easier than ever before. Today we are going to dive into this pool of information and understand what Crypto ETFs are, how they function, and how they differ from traditional ETFs, in simple language. We will also explore why are they important in the faster growth of the investor's assets. 

ETFs are much similar to mutual funds or particularly index funds in the conventional stock exchanges of the world. Mutual funds are large money pools, collected from many investors, that buy the assets against the invested money, and distribute the generated profits among the investors. A crypto index fund is a type of mutual fund in which investors invest money in a fund that is managed by expert fund managers. In the article ahead we are going to discover the details of crypto ETF investments and the know-how of investment risk reduction in highly volatile market situations. 

What Are Crypto ETFs?

Trading is a complex, exhaustive, and demanding process involving a sizeable amount of risk, especially in crypto markets. It requires a plethora of information and years of experience to be an expert trader. But all thanks to mutual funds and ETFs which have made trading easy for the masses. Similar to the conventional and physical ETFs, now comes the crypto ETFs that revolutionize trading in cryptocurrencies and digital assets and make it less daunting. Crypto ETFs are the exchange platform that performs the job of individual traders. 

Crypto ETFs track multiple assets and global crypto projects to purchase them for the people’s money invested in the fund. Crypto ETFs lower the costs of asset ownership for the investors and mitigate the risks in those holdings. One who has deposited their on ETFs need not buy their own wallets to keep their digital assets and private keys. ETFs make sure that the private keys of their investors are secured using advanced security gatekeeping. By investing in ETFs you can avoid intense research about digital assets, exchanges, and wallet fees. Your fund managers will keep an eye on the markets for you in exchange for a small percentage of the profits. 

How Do Crypto ETFs Work?

Crypto ETFs have been assumed to be a powerful way to pump the price of a digital asset, as the price of an asset depends on the market demands and supply and this is how major ETFs make the profits. However, Crypto ETFs work in two ways; 

  •  ETFs that are backed by physical cryptocurrency, buy real tokens and provide indirect ownership to investors. The market values of these ETFs depend upon the value of the assets stored in their treasuries. 

  • The second type of Crypto ETF is backed with the future derivatives of a digital asset. It is an agreement between the pre-defined value of a coin to the expected future value.

Benefits of Crypto ETFs

EFTs are a worthwhile, painless, affordable, and less technical crypto trading tool that has made trading less risky and more profitable. It is much similar to a mutual fund where you invest your money and accumulate long-term profits. It has a resemblance with traditional stock exchanges as well where you can sell your assets during business hours. 

Convenience

Crypto purchases and trading requires you to have complete knowledge about investments,  crypto projects, and opted preferences of investments. Crypto ETFs eliminate these efforts and provide you a straightforward way to have indirect ownership of crypto assets at a lesser risk. It eliminates the need to possess a hardware wallet and safeguard your seed phrases. Crypto ETFs take charge of the security of your assets and free you from headaches involved in the processes. Most ETFs do regular rebalancing of the portfolio, which an individual investor can take months to do. 

Diversification

With investments in more than one project and one kind of asset, you can diversify your portfolio using ETFs. You can indirectly own NFTs, invest in blockchain startups, and contribute to liquid pools while also investing in selected cryptocurrency coins. Investing in digital coins and assets via Crypto ETFs lowers the risk factors associated with the process by diversifying the investments to a large pool of assets. Investment in multiple assets reduces the chances of finding oneself in between a crypto market catastrophe

Lower Risk

Cryptocurrencies are volatile assets whose prices are uncertain and ever-changing. Trading on digital assets involves high risks as they depend on the market trends and demands. Apart from the market risks timely cyber attacks have resulted in hacked cryptocurrency exchanges and hundreds of traders and investors being hacked several times in the past. Investment via the crypto ETFs is less risky as your fund manager is responsible for providing you with adequate security and the right investment in multiple assets rather than one. This significantly reduces the risk factors and provides you with more security. 

Low Cost of Ownership

Buying digital assets using ETFs will incur you pay less for owning digital assets than regular cryptocurrency exchanges. Cryptocurrency exchanges charge the deposit fee, exchange fee, withdrawal fee, trading fee, network fee, and hidden fee apart from the asset cost. Crypto ETFs charge a low management and convenience fee that requires no crypto wallet. It could be a perfect investment plan for those who are new to the markets and want to start with smaller investments. 


Other Safe Methods to Invest in Cryptocurrencies

There is not only one way to invest in Cryptocurrency, as you can invest in cryptocurrencies through crypto mutual funds, and crypto index funds, which are a part of the mutual fund family. There are a few methods apart from index funds to invest in the crypto industry. You can invest in them using multiple respective vendors. 

Investing in Crypto Companies

Yes, you can invest in cryptocurrencies without buying any crypto coin but by investing in crypto company stocks. Many large-scale investors are interested in investing in crypto-asset companies as they are continually catching people’s attention throughout the world and providing a huge scope of future returns.  Cryptos are volatile assets and involve high risks. The fall of a coin’s value can cause the company to fall. but the opposite is also true and thus both should be kept in mind.

Crypto Mutual Funds

Cryptocurrency mutual funds are the same as the traditional Mutual fund but they differ from the Crypto ETFs (Exchange Trading Funds) in price. Crypto Mutual funds charge additional portfolio management and convenience fees to the end investor. A crypto mutual fund involves investments for a specific pack of assets and fetches returns from that area only. Buying mutual funds with a crypto trading account is easy, however, there are very few crypto mutual funds to choose from. 

Crypto Index Funds

The idea behind the Crypto Index Funds is the same as of the traditional index funds. Though it is much easier to invest in crypto index funds than mutual funds due to the absence of multiple KYC processes involved in MF investments. Indexes are comprised of top crypto companies, and the investments are done only in those top companies. There is no management fee for the index funds, unlike the mutual fund due to the lack of management required in the process. Nifty50, Sensex100, and Nifty100 are some of the traditional funds from which you can get the idea of how crypto index funds work.

Future of Investment in Cryptocurrencies

As cryptocurrency has a wide spectrum throughout the globe, they are caught everybody’s attention since its arrival as a driving force in the market. People like you are willing to invest in cryptocurrency assets and companies due to the returns crypto has been able to produce over the years, and it is only going to increase with time. 


However, ‌investments in cryptocurrencies and related companies depend upon your faith in the future of the crypto industry. If you think that cryptocurrencies have the potential to revolutionize the world in long term, then it can be an investment for you. The truth is that decentralized finance is being adopted across the globe and changing the way money moves around. If you can see this then today is the right time to invest in the tech of the future. 

Conclusion 

Crypto Industry is wide open for investors, from buying coins to investing in stocks everythings i becoming more accessible with each passing day. Out of the crypto investment methods, ETFs are one of the most profitable and affordable way to start in the crypto trade. However, if you want to invest in cryptocurrency but cannot pay full attention to trading only, crypto ETF should be the way to go rather than investing blindly in market trends. As you have read  in the  article above, how ETFs have transformed the trading methods into a lucrative way, but believing blindly in any fund can worsen the situation for you. Thus, perform intense research about the crypto ETFs that you are planning to trust and invest. 



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