Intermediate Series

Crypto ETF 101: What Is It and How Does It Work?

What’s a crypto ETF? And how does it work? With much of the media talking about crypto ETFs, many are left wondering what the fuss is all about. 

As speculation that crypto ETFs will be granted permissions from regulators to launch grows, many people expect that this will send the price much higher as large institutions like pension funds and sovereign wealth funds can more easily invest. Crypto ETFs certainly signal that the crypto market has reached a new level of maturity. 

However, as we’ll see, crypto exchanges continue to have large advantages over ETFs, and more importantly — live up to the original crypto vision of an open and accessible financial system for all. 

Contents

  • What is a crypto ETF?
  • Is there a crypto ETF in Australia on the ASX?
  • How is a crypto ETF different from a crypto exchange?
  • Advantages of a crypto exchange over a crypto ETF
  • Access crypto on an Australian crypto exchange 

What is a crypto ETF?

An ETF is short for Exchange-Traded Fund. It’s a publicly-traded investment that’s traded on a stock exchange like the ASX. The price of an ETF tracks the assets held by the fund, usually an index of different companies, rather than shares of a single company. 

In Australia, many investors are familiar with Vanguard’s range of ETFs, which track both Australian and international markets. For many, it’s an easy and affordable way to invest as the fees are low and historic returns are strong. 

So what’s a crypto ETF? It’s an investment fund that holds crypto and will generally track the intrinsic value of the crypto held. A bitcoin futures ETF for the US has been approved in October 2021 and Canada offers a number of crypto ETFs on the Toronto Stock Exchange. 

Is there a crypto ETF in Australia on the ASX?

There is no crypto ETF listed on the Australian Stock Exchange (ASX). There are also no current plans in the short term to list an ETF that holds crypto tokens, however, the company BetaShares is looking to launch an ETF that tracks crypto-related companies. And while Australia hasn’t approved crypto ETFs as of October 2021, it may in the future as other Western nations make moves to provide clear regulations and welcome crypto ETFs. 

How is a crypto ETF different from a crypto exchange?

The main difference between a crypto ETF and a crypto exchange is asset ownership. With a crypto ETF, you only own shares of the fund and not the actual crypto tokens like bitcoin. But with a crypto exchange, you can purchase and own the actual cryptocurrencies. This may seem like a small difference, but as we’ll see, it has many advantages. 

Advantages of a crypto exchange over a crypto ETF

1. Self custody your coins

As they say in crypto; Not your keys, not your coins. When you buy crypto on a cryptocurrency exchange like Cointree, you can transfer your crypto to a private wallet with your own private key. You always have the option to take full custody of your coins at any time. 

In contrast, you can never take custody of your share of crypto assets in an ETF. All you can do is trade the shares of the ETF, not the crypto asset itself. 

2. Send and receive crypto anywhere 

When you buy crypto from an exchange, you can send it to anyone, anywhere in the world. To receive crypto, all somebody has to do is set up a crypto wallet. Not to mention, you can send crypto to someone in minutes, compared to bank transfer times that can take up to five days for international transactions. 

3. Trade 24/7 

You can buy and sell cryptocurrency on an exchange 24 hours a day, 7 days a week, 365 days a year. The market never closes so your assets are much more liquid. In fact, with a crypto exchange like Cointree, you can even set auto-trades that trigger at certain price points so you never miss a trading opportunity again. 

Compare that to a crypto ETF, which can only be traded when the stock market is open. That means if there’s important news over the weekend, you might have to wait days before the stock exchange opens and you trade your ETF shares, at which point the market may have already moved against you. It’s even worse with public holidays. 

Not to mention, it makes it harder for anyone working a 9-5 job as the only time the stock market is open to trade is when they’re at work. 

4. No management fee

Crypto ETFs come with a management fee, which based on other ETFs, would most likely be 1-2% per year. If you’re investing AU$100,000, that’s AU$1-2k gone immediately. And that figure adds up quickly when compounded over a long term investment. 

When you buy crypto on an exchange, you only pay a once-off trading fee which can be as low as 0.05% on an exchange like Cointree. So an exchange can help you get the most cryptocurrency for your dollars invested. 

5. Help build an open and accessible financial system for everyone

In a country as fantastic as Australia, it’s easy to take for granted the financial system we have available at our fingertips. Unfortunately, billions of people across the globe don’t have access to the same financial services and products as we do. 

While it would be fantastic if everyone could have access to the Australian Stock Exchange and New York Stock Exchange, that’s unfortunately not a reality in the current financial and banking system. 

Many people believe that crypto can change that. With more affordable and accessible financial products known as decentralised finance, everyone can access the same opportunities that we have here in Australia. 

Access crypto directly on an Australian regulated exchange 

It’s easy to access the actual crypto assets in Australia. You can buy and take custody of the actual assets themselves. All you need to do is sign up, verify your identity, deposit funds and you’re ready to make your first purchase. It’s safe and secure too. 

At Cointree, we’re an AUSTRAC regulated exchange that goes above and beyond the industry standards for security. With bank level encryption and our Fund Protection Features, we’ve helped tens of thousands of Australians enter the world of crypto. 

While a crypto ETF could push crypto prices higher as it allows large institutions like pensions funds to more easily purchase crypto, ultimately, its crypto exchanges that help fulfil the original vision of cryptocurrency that inspired us here at Cointree — an open and accessible financial system for all.