Although cryptocurrency ETFs are still relatively new to the market, there is enough data to determine which funds are outperforming others. We’ve compiled a list of the top five crypto ETFs with the best year-to-date returns as of February 4, 2022. We examine critical statistics such as expenses and holdings in addition to performance.
What Are Cryptocurrency ETFs and How Do They Work?
An exchange-traded fund (ETF) that tracks the price of one or more digital currencies is known as a cryptocurrency ETF. Cryptocurrencies ETFs do not hold cryptocurrency directly. Instead, they are either backed by physical cryptocurrencies or hold derivatives, such as futures contracts, that allow the fund to acquire exposure to cryptocurrency prices without actually owning the digital currency.
On October 19, 2021, the first cryptocurrency ETF, ProShares Bitcoin Strategy ETF (BITO), became accessible to investors. There were 13 applications for new cryptocurrency ETFs pending SEC approval prior to that date. The SEC had only approved ETFs that hold bitcoin cryptocurrency futures as of December 2021, while the US continues to wait for a physically backed cryptocurrency ETF.
By holding stock positions in blockchain miners or firms that may profit from blockchain technology in some way, certain ETFs give indirect or limited exposure to cryptocurrencies. “Blockchain ETFs” are the common name for these funds.
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Evaluating the Performance of a Cryptocurrency ETF:
- Performance: This list of crypto ETFs examines their YTD performance until February 4, 2022.
- Expenses: When two ETFs track the same index or commodity, the one with the lowest expense ratio outperforms the one with the highest. Cryptocurrency ETFs on the market now have higher expenditures than a standard ETF that tracks a broad stock market index, which investors should be aware of.
- Structure: Grantor trusts are used by many ETFs that seek to mirror the performance of a single commodity or currency since they allow the funds to own fewer assets while still adhering to the typical fund diversification guidelines. For tax purposes, some bitcoin ETFs are constituted as corporations, while others are established as Registered Investment Companies.
- Only ETFs that strive to track the price of one or more digital currencies, less fund expenses, are considered for our best performing cryptocurrency ETFs list. Closed-end trusts and ETFs with minimal exposure to cryptocurrencies were excluded from this list, as were other crypto-related ETF objectives and strategies.
- Portfolio holdings: ETFs that track the price of one or more cryptocurrencies often contain cryptocurrency futures contracts, as well as US Treasuries or short-term cash instruments, rather than stock or bond mutual funds.
5 best cryptocurrency ETFs by performance:
The ProShares Bitcoin Strategy ETF is an exchange-traded fund that invests in bitcoin futures contracts and pursues capital appreciation. BITO seems to be the industry’s first futures-based cryptocurrency ETF, as well as the largest in terms of assets under administration.
- As of date: February 4, 2022
- YTD performance (price): -11.56%
- Expense Ratio: 0.95%, or $95 annually for every $10,000 invested
- Annual Dividend Yield: None
- Average Daily Volume: 9,012,909
The ProShares Bitcoin Strategy ETF (BITO) underperformed the Bitcoin USD price benchmark by a little margin. Because bitcoin futures ETFs track contracts that speculate on the digital currency’s future price rather than the present or “spot price,” tracking the benchmark can be difficult.
BITO, like other cryptocurrency ETFs that hold Bitcoin futures contracts, has lagged the S&P 500 index in the first half of 2022.
Valkyrie Bitcoin Strategy ETF:
Valkyrie Bitcoin Strategy ETF is an actively managed ETF that invests primarily in bitcoin futures contracts and is offered through Nasdaq. BTF’s active management strategy outperformed its category counterparts, despite not having the lowest expense ratio among bitcoin cryptocurrency ETFs on the market.
- As of date: February 4, 2022
- YTD performance (price): -13.97%
- Expense Ratio: 0.95%, or $95 annually for every $10,000 invested
- Annual Dividend Yield: None
- Average Daily Volume: 882,083
The Valkyrie Bitcoin Strategy ETF (BTF) underperformed the Bitcoin USD price benchmark by a substantial margin. This is because bitcoin futures ETFs track contracts that speculate on the digital currency’s future price rather than the assets current or “spot” price.
BTF, like other cryptocurrency ETFs that hold Bitcoin futures contracts, has lagged the S&P 500 index in the first half of 2022.
Bitwise 10 Crypto Index:
The Bitwise 10 Crypto Index includes 10 of the most popular cryptocurrencies, including bitcoin. BITW aims to track the performance of a 10 most valuable cryptocurrency index, which is then inspected and monitored for certain risks, weighted by market capitalization, and rebalanced monthly.
BITW is a cryptocurrency exchange-traded fund that does not invest in Bitcoin futures contracts. Investors should also be aware that BITW is constituted as a partnership, which means that at the end of the tax year, investors will receive a K-1. Investors should be aware of the fund’s tax implications before making a decision. Furthermore, 2.50 percent is a high expense ratio for an ETF.
- As of date: February 4, 2022
- YTD performance (price): -13.97%
- Expense Ratio: 2.50%, or $250 annually for every $10,000 invested
- Annual Dividend Yield: None
- Average Daily Volume: 176,569
VanEck Bitcoin Strategy ETF:
The VanEck Bitcoin Strategy ETF is an actively managed exchange-traded fund that invests in bitcoin futures contracts to pursue financial appreciation. Although XBTF has the lowest expense ratio among bitcoin cryptocurrency ETFs, it does not outperform the category leaders in terms of performance.
- As of date: February 4, 2022
- 1-month performance (price): -16.23%
- Expense Ratio: 0.65%, or $65 annually for every $10,000 invested
- Annual Dividend Yield: None
- Average Daily Volume: 75,491
The VanEck Bitcoin Strategy ETF (XBTF) underperformed the Bitcoin USD price benchmark by a substantial margin. This is because bitcoin futures ETFs track contracts that speculate on the digital currency’s future price rather than the asset’s current or “spot” price.
Over the last month, XBTF, like other cryptocurrency ETFs that contain Bitcoin futures contracts, has lagged the S&P 500 index.
Global X Blockchain and Bitcoin Strategy ETF:
The Global X Blockchain and Bitcoin Strategy ETF is an actively-managed exchange-traded fund that invests in a mix of blockchain firms and bitcoin futures contracts to pursue financial appreciation.
- As of date: February 4, 2022
- YTD 2022 performance (price): -16.94%
- Expense Ratio: 0.65%, or $65 annually for every $10,000 invested
- Annual Dividend Yield: None
- Average Daily Volume: 13,149
The Global X Blockchain and Bitcoin Strategy ETF (BITS) underperformed the Bitcoin USD price benchmark by a substantial margin. This is due to the fact that BITS is an actively-managed fund that includes blockchain startups in addition to bitcoin futures contracts in its portfolio.
BITS, like the other leading bitcoin ETFs, has lagged the S&P 500 index in the last month.
Conclusion:
Cryptocurrency exchange-traded funds (ETFs) provide indirect exposure to digital currency by owning futures contracts and, in some cases, stock positions in companies using blockchain technology, so owners do not own the physical asset. Investors should be aware that employing futures might lead to disconnects with the underlying value of the asset being tracked, causing the ETF’s performance to diverge from that of its benchmark coin.
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