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What is a Crypto ETF? Your Comprehensive Guide to Crypto ETF
Majority of us have been hearing about crypto ETFs, well here is a breakdown of what they are and how they impact the crypto space
Crypto ETFs are exchange-traded funds (ETFs) that track the price of one or more cryptocurrencies.
- Three main types of crypto ETFs: physically-backed, synthetic-backed, and crypto-adjacent.
- Currently in the US, only synthetic-backed and crypto-adjacent ETFs are allowed by the SEC. Several firms are trying to get permission to offer physically-backed ETFs.
- While crypto ETFs offer investors a simplified way to gain exposure to the crypto market without delving into the technical intricacies, it's important to acknowledge certain drawbacks such as tracking error or limitations in accessing the benefits of DeFi.
What are Crypto ETFs?
Before getting to crypto ETFs, we need to know what ETFs are.
In simple terms, an ETF, or exchange-traded fund in full, is an investment fund that lets you buy a large basket of assets, which could include stocks, bonds, commodities, or even alternative assets such as real estate or cryptocurrencies, in one purchase. ETF is designed to mirror the performance of a specific index, sector, or asset class, and can be traded on stock exchanges just like individual stocks. These funds also function much like common stocks, as their prices can vary within a day based on investor sales or purchases. Basically, ETF combines the best features of indexes and stocks, offering investors exposure to a diversified portfolio of assets at regularly updated prices. 
Crypto ETFs, unlike traditional ETFs that track indexes or various assets, specifically track the price of one or more cryptocurrencies. On the other hand, similar to how traditional ETFs work, crypto ETF prices may fluctuate several times during the day depending on trading activities. Crypto ETFs provide an excellent alternative solution for those interested in cryptocurrencies but hesitant to manage the relatively new form of assets themselves.
In 2021, the first crypto ETF ever released was the Purpose Bitcoin ETF(BTCC) in Canada. This is an ETF that tracks BTC spot prices.