How to Invest in Digital Currency Without Buying Coins

For most of crypto’s existence, those looking to purchase digital assets had to do so through cryptocurrency exchanges. But now, that’s starting to change.

If you’ve been hesitant to get into crypto because navigating cryptocurrency exchanges can sometimes be a technical and daunting task, now may be the perfect time to explore the new spot exchange-traded funds (ETFs) available to investors.

Image source: Getty Images.

What are spot ETFs?

A spot ETF is a financial instrument that allows investors to gain exposure to the price movements of an underlying asset (in this case, cryptocurrencies like Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH)) without directly owning the asset. These ETFs trade on traditional exchanges, and their value is tied directly to the current (or spot) price of the cryptocurrency.

One of the main differences between owning a spot ETF and owning actual crypto is custody. When you own a cryptocurrency, you need to manage its storage and security, which includes using digital wallets and understanding private keys. With spot ETFs, the custody responsibility falls on the fund manager, making it easier for investors to gain exposure to the asset without worrying about the complexities of safe storage.

In many ways, you can think of spot ETFs like gold ETFs. When people buy a gold ETF, they don’t get actual gold coins or bars. Instead, they get shares that track the price movement of gold.

Another important distinction is trading hours. While cryptocurrencies are available to trade 24/7, spot ETFs are subject to exchange trading hours. This means that you can only trade ETFs during market hours. These limited hours could cause you to miss out on significant price movements that occur outside of the market’s designated trading hours.

Options available today

Currently, the only options for investors looking for spot crypto ETFs are Bitcoin and Ethereum. These two cryptocurrencies stand out due to their significant value and established history, positioning them as attractive options for integrating into the exchange via ETFs. Often referred to as digital gold, Bitcoin was the first cryptocurrency (created in 2009) and the first cryptocurrency to receive approval for a spot ETF. After approximately seven months of trading, the approval of 11 spot Bitcoin ETFs has been announced as one of the most successful ETF launches in history.

More recently, nine spot Ethereum ETFs received approval from the Securities and Exchange Commission (SEC) to begin trading on July 23. Ethereum, the second-most valuable cryptocurrency and the backbone of the decentralized finance (DeFi) economy, was the next best candidate for a spot ETF launch.

The story continues

While limited to two cryptocurrencies, we can expect more cryptocurrencies to gain spot ETFs as investors become more comfortable with digital currencies and ETFs continue to prove popular. The early stages of this expansion are already visible as applications for the Solana spot ETF have begun to open.

How to buy spot ETFs

Buying a spot ETF, like any other ETF investment, involves a few steps and considerations. Here is a detailed guide on how to do it:

Start by researching available spot Bitcoin and Ethereum ETFs. Compare their fees, assets under management (AUM), and performance. ETFs with lower fees and higher AUM are generally more attractive because they can offer better liquidity and lower costs.

You need a brokerage account to buy ETFs. If you don’t already have one, choose a brokerage that offers a wide selection of ETFs, low fees and a user-friendly platform.

If you’re new to the brokerage, you’ll need to provide your personal information and fund the account from your bank. Most brokerages offer multiple funding methods, including ACH transfers, wire transfers, and check deposits.

Once your account is funded, use your broker’s search function to find the Bitcoin or Ethereum ETF you’ve decided to invest in. ETFs are often identified by their ticker symbol, so knowing these can make searching easier.

Decide how many shares of the ETF you want to buy. You can place a market order to buy the ETF at the current market price or a limit order, which specifies the maximum price you are willing to pay. Review your order carefully before submitting it.

Once you purchase the ETF, monitor its performance and follow any news or developments regarding cryptocurrencies and the ETF itself. Reviewing your investment regularly ensures that it is aligned with your financial goals and risk tolerance.

An evolving landscape

The introduction of spot Bitcoin and Ethereum ETFs marks a significant milestone in the evolution of cryptocurrency investing. These financial instruments offer a simpler, more accessible way to gain exposure to digital currencies without dealing with the complexities of cryptocurrency exchanges and direct ownership.

By following the steps of purchasing these ETFs through a brokerage account, investors can seamlessly integrate digital currencies into their investment strategies. As the cryptocurrency market continues to mature, the availability and acceptance of spot ETFs will likely increase, providing investors with more opportunities to participate in this dynamic asset class.

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RJ Fulton has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.

The Rise of Crypto ETFs: How to Invest in Digital Currency Without Buying Coins was originally published by The Motley Fool