Are Crypto ETFs Worth Investing In?

/ Planning Within Reach, LLC/

Cryptocurrency continues to explode in both adoption and interest. It was only a matter of time until crypto ETFs came onto the scene. Are they worth investing in?

Cryptocurrency in Portfolios

I don’t currently recommend cryptocurrency as an asset class in client portfolios due to its speculative nature, the lack of regulation, and its high volatility. That being said, some clients are interested in buying a small slice for their “play accounts” - accounts not relied on for retirement or other financial goals.

Bitcoin and other cryptocurrencies can be purchased through online platforms such as Coinbase, but for those that are overwhelmed by the different types of cryptocurrencies, storage fees, and security concerns, a crypto ETF is very appealing. Unlike cryptocurrency itself, crypto ETFs are regulated and listed on an exchange, making buying and selling as easy as trading a stock. While I can see the appeal, it is important to look under the hood and understand what you are investing in.

Today’s crypto ETFs are not actually investing in cryptocurrency.

To date, the SEC has only approved cryptocurrency ETFs that hold cryptocurrency futures. Futures are contracts to buy and sell a commodity at a specific price at a future date. In comparison, the spot price is the price for immediately buying and selling a commodity. In the case of ProShares Bitcoin Strategy (BITO), for example, you are not investing in Bitcoin. You are investing in Bitcoin futures that can and will vary from the spot price of Bitcoin.

Crypto ETF fees are much higher than your average ETF.

ETFs that I typically recommend for clients have an average expense ratio of .25% or lower. Crypto ETF’s range from .65% to .95%. This is due to the ETFs holding futures versus cryptocurrency. Futures need to be sold near expiration and replaced with new contracts that have later expiration dates. These transactions incur fees that are passed on to the investor.

I don’t recommend any crypto ETFs currently on the market.

Investors want exposure to the crypto asset class with something as cheap and easy as buying an S&P 500 index fund at Schwab. Unfortunately, I don’t see a good crypto ETF that checks all of those boxes at this point. That could change if the SEC allows spot-based crypto ETFs. In the meantime, buy cryptocurrency directly at a crypto exchange if you want exposure to this asset class.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning and ongoing impact-focused investment management in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.