Key takeaways
Cryptocurrencies have entered the investment mainstream. Exchange traded funds (ETFs) are enabling more investors to get exposure to these assets.
- Potential crypto benefits — Bitcoin, Ethereum and others may offer potential growth, portfolio diversification, and an inflation hedge
- Familiar investment vehicle — Exchange traded funds are accessible to investors through standard brokerage accounts unlike direct holdings
- Risky asset class — Crypto also comes with many risks including volatility; loss and theft are an even greater threat for direct holdings
- Portfolio perspective — Suitable investors may consider crypto exposure in the context of their overall portfolios, rather than on a standalone basis
The global cryptocurrency market is evolving fast. What began as a niche alternative to state-issued currencies in 2009 have morphed into a significant investment asset class.
Recognizing this, governments in the US and elsewhere are passing new laws to foster clarity and protect investors. As of July 2025, the total value of all cryptocurrencies worldwide was estimated at over $4 trillion — figure 1.
Of course, $4 trillion is tiny compared to the global market capitalization of major asset classes. The worldwide value of equities, for example, may be as high as $144 trillion1. But cryptocurrencies may still only be in their early stages.
Originally, Bitcoin was meant to be an alternative to traditional money. Users would make purchases, transfer funds and store value without the involvement of banks or governments. Early adopters were generally tech-minded individuals.
By contrast, owners today also include large financial institutions, family offices, hedge funds, major companies, and even some governments.
By the end of 2025, there may be between 750 million and 900 million users globally2.
Investors are typically seeking potential growth, portfolio diversification, and a hedge against inflation.
(That said, stablecoins — another kind of crypto — are heavily used for payments, transfers and the like. Stablecoins are pegged to a reserve asset, typically the US dollar, to stabilize their value.)
To seek cryptocurrency portfolio exposure, many investors are turning to exchange traded funds (ETFs).
What are cryptocurrency ETFs and how do they work?
Like ETFs that track equities, bonds or commodities, crypto ETFs are funds that trade on a public stock exchange.
Crypto ETFs mostly own a stake in Bitcoin or Ethereum, the two biggest cryptocurrencies.
The ETFs’ assets might be direct holdings of the cryptocurrencies themselves or futures contracts. The latter don’t own actual bitcoin. Instead, they are based on a benchmark crypto index.
For both varieties of ETF, their prices go up and down with the cryptocurrency they represent, although not necessarily one-for-one.
Crypto ETFs can be bought and sold whenever the stock market is open.
And similarly to ETF transactions, investors may be charged a commission or a markup, as well as an annual management fee.
ETF annual management charges could range between 0.2% and 0.9% a year.
ETFs vs direct holdings
So, why invest via crypto ETFs instead of directly holding the cryptocurrencies in question?
For many, buying and selling an ETF through a brokerage is familiar and intuitive. By contrast, the world of digital wallets and exchanges can seem complicated.
The same goes for working out taxes due on crypto ETF sales. Brokerages typically provide standardized reporting, whereas the investor may have to do more of the recordkeeping with direct crypto holdings.
In various ways, direct ownership can be riskier. Direct holdings are more often targeted by hackers. An even bigger issue is losing crypto keys — the ownership identifiers for crypto. Hundreds of billions of dollars’ worth of Bitcoin alone may now be inaccessible forever owing to forgotten or mislaid details.
With a crypto ETF, the investor does not have to safekeep keys or defend against hacks. For ETFs owning direct cryptocurrency, a professional custodian holds the underlying cryptocurrency.
Robust processes and cybersecurity make key loss and thefts much less likely, but not inconceivable. If disaster struck, at least some losses might be legally recoverable from the custodian.
Because they don’t hold any actual crypto, futures-based ETFs do not have these hack and loss risks. However, their structure means they may underperform crypto over time.
| Direct ownership | Crypto ETFs | |
|---|---|---|
| Availability | Full range of major and minor cryptocurrencies | Very limited selection, mostly Bitcoin and Ethererum for now |
| Access | 24/7 buying and selling | When stock market is open |
| Usability | Investing, payments, transfers | Investing only |
| Custody | Investor responsible | Professional custodian responsible |
| Security | Greater risk of hacks, loss of access | Lesser risk |
| Platform | Digital wallets | Brokerage accounts |
| Fees & costs | Trading fees | Brokerage commission, bid-offer spread, annual management fee |
| Reporting | Potentially more complicated recordkeeping | Potentially easier, with standardized broker reporting |
| Retirement account eligibility | Generally ineligible | Eligible for certain retirement accounts |
Despite such issues, direct holdings may be more appealing for some investors.
Cryptocurrency itself can be used in payments or transfers, unlike ETFs. Direct holdings are more private, albeit not completely anonymous.
They can also be traded 24/7 rather than just in stock market hours and potentially incur lower fees than crypto ETFs.
For those seeking exposure to a variety of cryptocurrencies, there are many more options when going direct.
What are some risks of cryptocurrency ETFs?
Cryptocurrencies are risky — as are the ETFs linked to them.
In the last five years alone, the likes of Bitcoin and Ethereum have suffered peak-to-trough crashes as deep as 71% and 79% respectively3.
Declines in these crypto currencies have often coincided with selloffs in equities, meaning they have not provided diversification when most needed — figure 3.
Over the five years to September 2025, Bitcoin’s price was over four times more volatile than the S&P 500 Index and three times more volatile than US technology equities. And Ethereum was even more volatile4.
Other risks may include failures of crypto exchanges and providers, disadvantageous future regulatory or tax changes, and cybersecurity compromises.
Might crypto ETFs be suitable for your portfolio?
With sharp price moves and frequent hype around crypto, a measured approach to investing is essential.
When considering this market, you should revisit your overall investment goals, risk tolerance and time horizon. Is crypto consistent with these?
If so, the next step is to understand how crypto ETFs might work with the rest of your portfolio. You can then determine how much or how little to hold.
Depending on your goals, direct ownership or crypto ETFs might make more sense — or even a mix of both.