What is cryptocurrency ETF?
One of the ways to invest in cryptocurrencies is through index funds (Exchage-Traded Funds – ETFs). This option is basically an investment fund that can be traded on the stock exchange, like a stock. ETFs pool resources from different investors and replicate a benchmark.In the case of cryptocurrencies, the ETF tracks indicators of this type of asset, such as Bitcoin or altcoins (other digital currencies). In Brazil, five cryptocurrency ETFs are already available on B3: Hashdex Nasdaq Crypto Index Index Fund, QR CME CF Bitcoin Reference Rate, CME CF Ether Reference Rate, Hashdex Nasdaq Bitcoin Reference Rate and Hashdex Nasdaq Ethereum Reference Price Index Fund.
The first one appeared on the stock exchange in April 2021: the Hashdex Nasdaq Crypto Index Index Fund. It replicates the Nasdaq Crypto Index (NCI), which is made up of eight cryptocurrencies, with different percentages. Every three months, assets are added or removed from the NCI based on criteria such as performance and market acceptance. The most recent change in the composition of the indicator took place in September. In October 2021, the assets that make up the index and their percentages are: Bitcoin: 66.61% Ethereum: 29.78% Litecoin: 0.90% Chainlink: 0.68% Uniswap: 0.57% Bitcoin Cash: 0.56% Filecoin: 0.49% Stellar: 0.40% In June 2021, it was time for the QR CME CF Bitcoin Reference Rate to debut at B3. This option is 100% linked to Bitcoin — it was the first ETF in the country with this feature. It follows the CME CF Bitcoin Reference Rate, of the Chicago Derivatives Exchange (Chicago Mercantile Exchange Group – CME). As early as August, the other three cryptocurrency ETFs were launched. QR Capital introduced the CME CF Ether Reference Rate, the first national index fund with 100% exposure to Ethereum. It follows the index used by CME, which tracks the price of the cryptoactive in dollars. Hashdex, in turn, started to offer the Hashdex Nasdaq Bitcoin Reference Rate, which replicates the Nasdaq Bitcoin Reference Price index and has 100% exposure to Bitcoin, and the Hashdex Nasdaq Ethereum Reference Price Index Fund, with 100% exposure to Ethereum by following the Hashdex Nasdaq Ethereum ETF
The main difference between the ETFs available in Brazil is the indicator used. While the Hashdex Nasdaq Crypto Index Index Fund follows the NCI, which is made up of eight cryptocurrencies, the others follow indexes linked only to Bitcoin or Ethereum. In the first case, then, the investor acquires an asset and has exposure to several currencies. In the others, it is subject to the fluctuations of only one digital currency. Another differentiating aspect is the annual administration fees, which range from 0.7% to 1.3% depending on the fund chosen. When comparing cryptocurrency ETFs with those of other segments, the difference is basically the type of index used. Just as crypto ETFs track industry indicators, other ETFs can replicate equities, commodities, fixed income, and so on. In Brazil, the most common are variable income, such as the Ibovespa ETFS, Corporate Governance, Corporate Sustainability and the S&P 500. Until the beginning of October, B3 already had almost 50 ETFs available. It is still not possible to know the profitability of these funds in the long term, as they are still new products. The first step to investing in a cryptocurrency ETF is to open a brokerage account. Then simply transfer money to the platform, find the fund and buy it. Remember that you must pay brokerage and custody fees for brokers and trading fees on B3. In addition, cryptocurrency ETFs are subject to 15% income tax on capital gain.
Advantages and disadvantages As a hybrid of traditional mutual fund and stock, cryptocurrency ETFs have some advantages. It starts with ease: after registering with a broker, you can trade them. In addition, the investment is low: in early October, the initial quotas here ranged between R$14 and R$72.
Costs related to administration fees and operating expenses are low when compared to cryptocurrency investment funds. This is because they have passive management and do not need an expert to analyze the market and maximize the title's performance. Another interesting aspect is security, as cryptocurrency ETFs are authorized by the Brazilian Securities and Exchange Commission (CVM) — unlike the assets themselves, which are not yet regulated as investments around here. This ensures more legal certainty for those who are not comfortable with digital coins. Even so, cryptocurrency ETFs have risks and drawbacks. The main one is the volatility related to asset price fluctuations. Another aspect is the risk of the ETF not being able to exactly replicate the benchmark index, due to operating fees and expenses. As they are passively managed, cryptocurrency ETFs seek to track a certain indicator. So, if one of the assets that comprise it shows signs of decline due to predictable short-term instabilities, it will not be removed from the mix and investors will have losses. And all this adds up to the trading hours, which are limited to the stock exchange: from 10:00 am to 5:00 pm, Monday to Friday. As the cryptocurrency market works every day, 24 hours a day, those who invest in ETFs cannot take advantage of variations in alternative hours or on weekends. Source: Canaltech
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