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Types of Crypto ETFs

Crypto ETFs come in three main types: physically-backed, synthetic-backed, and crypto-adjacent.

The first type, physically-backed ETFs, involves an investment firm that manages the fund and purchases actual cryptocurrencies. The ownership of these coins is then represented as shares in the ETF. By purchasing shares in the ETF, investors indirectly own the underlying cryptocurrencies. This approach allows individuals to gain exposure to digital assets without the costs and risks associated with owning them directly.

On the other hand, synthetic-backed ETFs are a variant that tracks cryptocurrency derivatives such as futures contracts and other cryptocurrency exchange-traded products (ETPs). For instance, some ETFs proposed to the U.S. Securities and Exchange Commission (SEC) track the prices of BTC futures contracts traded at the Chicago Mercantile Exchange (CME). In this case, the ETF's share price mirrors the price movements of these derivatives, rather than the actual cryptocurrencies themselves.

The third type of crypto ETF is known as an crypto-adjacent ETFs. Unlike other crypto ETFs that track the price of specific cryptocurrencies or use futures contracts, these ETFs focus on investing in stocks of companies involved in the cryptocurrency industry. This approach allows investors to make a broader bet on the future growth of the overall crypto economy, rather than solely relying on the price movements of individual cryptocurrencies like Bitcoin.