Passive management in crypto has several aspects. Today we are going to look at one of them, ETFs.
What is an ETF
ETF stands for Exchange traded fund. It is an investment fund that allows people to invest through it and invest in it.
This means that investors can deposit money in the fund so that the managers can invest it (as in a normal investment fund) but they can also buy shares of the fund in the market as if it were a share or a bond.
ETFs are usually managed passively. Instead of the fund managers investing clients’ funds at their discretion, the assets in which they will invest are established in advance.
For example, an ETF that replicates the SP 500 index will invest in the companies that make up the index, a currency ETF will invest only in currencies and an ETF that replicates the behavior of the price of gold will invest only in this asset.
Just as there are ETFs that replicate the behavior of various assets, there are also ETFs that invest in one or several cryptoassets.
Advantages and disadvantages
Among the advantages of an ETF are the low fees compared to protocols and asset management platforms. As the fund managers only have to buy and sell certain already established assets, their job is very simple and the fees they will charge for it are much lower than if they have to search among the best investments.
On the other hand, they offer diversification as cryptocurrency ETFs allow investors to gain exposure to multiple cryptocurrencies or digital assets through a single investment, reducing the risk associated with investing in a single cryptocurrency.
Linked to diversification is simplicity. It is easier to buy an ETF that includes exposure to multiple cryptocurrencies than to buy them one by one. Like traditional ETFs, cryptocurrency ETFs are traded on exchanges, making them easily accessible to investors who prefer the familiarity of traditional brokers.
As a main disadvantage, it should be noted that the range of cryptocurrencies included in an ETF of this theme may be limited to a few major tokens as the supply of these ETFs is quite limited. Thus, the investor is not exposed to the entire crypto market and therefore not benefiting from the overall market performance missing out on some opportunities.
Providers
21.co is a company that allows investors to invest in individual cryptocurrency ETFs or groups of cryptocurrencies based on various factors such as size and past performance.
Similarly, Amplify ETFs offers various ETFs to have exposure to different sectors within the crypto industry.
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