What is Exchange-Traded Fund (ETF)

A cryptocurrency Exchange-Traded Fund (ETF) is an investment vehicle that tracks the price of one or more cryptocurrencies and trades on traditional stock exchanges allowing investors to gain crypto price exposure through conventional brokerage accounts without directly purchasing, storing, or managing cryptocurrency.

THE SIGNIFICANCE OF SPOT BITCOIN ETFs

For years, the US Securities and Exchange Commission (SEC) rejected applications for spot Bitcoin ETFs ETFs that directly hold actual Bitcoin. The argument: Bitcoin markets lacked sufficient regulation and were vulnerable to manipulation. In January 2024, the SEC finally approved spot Bitcoin ETFs a watershed moment for crypto institutional adoption. On the first day of trading alone, the approved ETFs including BlackRock's iShares Bitcoin Trust (IBIT), Fidelity Wise Origin Bitcoin Fund (FBTC), and nine others collectively traded over $4.6 billion in volume.

SPOT VS. FUTURES ETF: THE CRITICAL DIFFERENCE

Futures ETF (e.g. ProShares BITO, approved 2021): Does not hold actual Bitcoin. Instead holds Bitcoin futures contracts agreements to buy Bitcoin at a future date. This creates tracking error and contango costs that cause the ETF to gradually underperform Bitcoin's spot price. Less desirable for long-term investors.
Spot ETF (e.g. BlackRock IBIT, Fidelity FBTC): Directly holds real Bitcoin in custody. Price tracks Bitcoin spot price closely. The preferred structure what investors actually wanted.

HOW CRYPTO ETFS WORK FOR INVESTORS

Purchase through any standard brokerage account Zerodha, Groww (for international ETFs), Fidelity, Charles Schwab. No crypto wallet setup, no seed phrase management, no self-custody concerns. Hold in retirement accounts (IRA, 401k in US context). Pay a management fee (expense ratio) of 0.15%-0.25% annually on major Bitcoin ETFs.

ETHEREUM ETF

Following Bitcoin ETF approval, spot Ethereum ETFs were approved in the US in May 2024, with trading commencing in July 2024. Ethereum ETFs from BlackRock, Fidelity, and others provide similar ETF-style access to ETH price exposure.

Terms in addition to the Exchange-Traded Fund (ETF)

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.