For much of crypto's existence, those interested in buying digital assets would have to do so via cryptocurrency exchanges. But now, this is beginning to change.
If you have been hesitant to dive into crypto due to what can be, at times, a technical and daunting task when navigating cryptocurrency exchanges, now might be the perfect time to explore the new spot exchange-traded funds (ETFs) at investors' disposal.
A spot ETF is a financial instrument that allows investors to gain exposure to the price movements of an underlying asset — in this case, cryptocurrencies like Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) — without directly owning the asset. These ETFs trade on traditional stock exchanges, and their value is directly tied to the current (or spot) price of the cryptocurrency.
One of the key differences between owning a spot ETF and owning the actual cryptocurrency is custodial responsibility. When you own a cryptocurrency, you need to manage its storage and security, which involves using digital wallets and understanding private keys. With spot ETFs, the custodial responsibility falls to the fund manager, making it easier for investors to gain exposure to the asset without worrying about the complexities of secure storage.
In many ways, you could think of spot ETFs like gold ETFs. When people buy a gold ETF, they aren't provided with actual gold coins or bullion. Rather, they own shares that track the price movement of gold.
Another important distinction is the trading hours. Cryptocurrencies can be traded 24/7, whereas spot ETFs are subject to stock exchange trading hours. This means you can only trade ETFs during market hours. These limited hours can lead to potentially missing out on significant price movements that occur outside the market's designated trading times.
Currently, the only options for investors looking for spot crypto ETFs are Bitcoin and Ethereum. These two cryptocurrencies stand out due to their significant value and established track records, positioning them as appealing options for integration into the stock market through ETFs. Bitcoin, often referred to as digital gold, was the first cryptocurrency (created in 2009), and the first to get approval for a spot ETF. With nearly seven months of trading now under their belt, the approval of the 11 spot Bitcoin ETFs has been touted as one of the most successful ETF launches in history.
More recently, nine spot Ethereum ETFs gained approval from the Securities and Exchange Commission (SEC) to start trading on July 23. As the second most valuable cryptocurrency and the backbone of the decentralized finance (DeFi) economy, Ethereum was the next best candidate for a spot ETF launch.
While limited to two cryptocurrencies, as investors become more comfortable with digital currencies and ETFs continue to prove popular, we can expect more cryptocurrencies to gain spot ETFs. The early stages of this expansion are already visible, with applications for Solana spot ETFs beginning to file in.
Buying a spot ETF involves several steps and considerations, much like any other ETF investment. Here's a detailed guide on how to do it:
The introduction of spot Bitcoin and Ethereum ETFs marks a significant milestone in the evolution of cryptocurrency investing. These financial instruments offer a simpler, more accessible way to gain exposure to digital currencies without dealing with the complexities of cryptocurrency exchanges and direct ownership.
By following the steps to purchase these ETFs through a brokerage account, investors can seamlessly integrate digital currencies into their investment strategies. As the cryptocurrency market continues to mature, the availability and acceptance of spot ETFs will likely expand, providing even more opportunities for investors to participate in this dynamic asset class.
RJ Fulton has positions in Bitcoin, Ethereum and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum and Solana. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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