Crypto ETPs and ETFs: a simple breakdown

Crypto ETPs and ETFs are explained through definitions, examples and key use cases.

With more investors looking to gain exposure to cryptocurrencies, financial institutions have introduced tools to bridge the gap between traditional markets and digital assets. Among the most widely-used instruments are Exchange-Traded Products (ETPs) and Exchange-Traded Funds (ETFs). Though often used interchangeably, ETPs and ETFs have important differences.

What is an ETP?

An Exchange-Traded Product (ETP) is a broad category of financial instruments that are traded on stock exchanges and designed to track the performance of an underlying asset, such as a stock index, commodity, currency or cryptocurrency.

ETPs offer a convenient and regulated structure for investors who want exposure to assets like Bitcoin or Ethereum without directly holding them or managing wallets and blockchain infrastructure.

What is an ETF?

An Exchange-Traded Fund (ETF) is a specific type of Exchange-Traded Product (ETP). It is structured as a fund that typically holds a portfolio of the underlying assets it tracks, such as cryptocurrencies, stocks or bonds.

A spot crypto ETF, such as those for Bitcoin or Ethereum, directly holds Bitcoin in custody, providing investors with price exposure without requiring them to manage the asset themselves.

Types of crypto ETPs

Crypto ETPs come in several forms, each tailored to different investor needs and risk appetites:

ETFs (exchange-traded funds):

ETFs are structured as funds and typically hold actual assets, such as cryptocurrencies, stocks or bonds. For example, a spot Ethereum ETF holds real Ethereum in secure custody, giving investors exposure to the asset through a traditional brokerage account without needing to manage private keys or wallets.  

ETNs (exchange-traded notes):

ETNs are unsecured, uncollateralized debt instruments issued by financial institutions. They don’t hold the underlying asset; instead, they promise to pay returns based on the performance of a specific index or asset, such as Bitcoin. Unlike ETFs or ETCs, ETNs carry issuer risk – if the issuing bank defaults, investors may lose their money, even if the underlying asset performs well. 

ETCs (exchange-traded commodities):

ETCs function similarly to ETFs in how they trade, but structurally they are not funds. They are typically used to track commodities, including digital commodities. Gold ETCs like Xetra-Gold are physically backed, with gold securely stored in vaults to support each share. Similarly, a Bitcoin ETC holds real Bitcoin in cold storage, allowing investors to gain exposure to cryptocurrency price movements without directly owning or storing the coins.

Leveraged and inverse ETPs:

 Tailored for experienced traders, these products target short-term price movements. Leveraged ETPs aim to amplify daily returns - often by two or three times - while inverse ETPs are designed to produce the opposite of the asset’s daily performance. For example, a short Bitcoin or Ethereum ETP increases in value when the respective asset’s price falls. Due to daily rebalancing and the compounding effect over time, these products are generally unsuitable for long-term holding.

Types of crypto ETFs

Crypto ETFs come in several forms, depending on how they gain exposure to the underlying cryptocurrency:

Spot crypto ETFs

These ETFs hold the actual cryptocurrency in secure custody. When investors buy shares of a spot ETF, they gain direct exposure to the real-time market price of the asset.Examples: iShares Bitcoin Trust (IBIT), Grayscale Bitcoin Trust (GBTC), Fidelity Ethereum Fund (FETH) 

Futures-based crypto ETFs

Instead of owning crypto directly, these ETFs gain exposure through futures contracts – financial agreements to buy or sell the asset at a set price on a future date. Performance can deviate from the spot market due to costs associated with rolling over contracts and futures price premiums or discounts. Example: ProShares Bitcoin Strategy ETF (BITO) 

 Synthetic crypto ETFs

These ETFs aim to replicate the price movements of a cryptocurrency using derivatives, such as total return swaps, instead of holding the crypto or futures contracts directly. Use case: More common in European markets where direct crypto exposure may be restricted or treated differently under tax or regulatory frameworks. 

Thematic or basket crypto ETFs

These ETFs offer exposure to a range of crypto-related assets, rather than a single cryptocurrency. They may include:

• A diversified portfolio of top cryptocurrencies
• Stocks of blockchain-focused companies
• Shares of crypto mining firms or infrastructure providers

Why сrypto ETFs matter

Crypto ETFs serve as a gateway between the traditional financial system and the crypto world. For retail investors, they remove technical hurdles like managing wallets and keys. For institutional players, they enable compliance with regulatory and custody frameworks. For regulators, they present a familiar structure for overseeing crypto-related investment products.

By packaging crypto exposure into regulated, exchange-listed funds, ETFs simplify access and provide an added layer of investor protection.

Examples of notable crypto ETFs

A few standout products demonstrate how the market has evolved. The launch of the iShares Bitcoin Trust (IBIT) marked BlackRock’s official move into the spot Bitcoin ETF market – a significant step for institutional engagement with crypto. Grayscale’s GBTC made headlines with its conversion to a spot ETF in 2024. The VanEck Ethereum Strategy ETF (EFUT) focuses on ETH futures, while ProShares BITO remains notable as the first U.S. Bitcoin futures ETF. In Europe, the Global X Blockchain & Bitcoin Strategy ETF (BITS) combines crypto futures with shares of companies operating in the blockchain space.

Key risks and considerations

While crypto ETFs make digital asset exposure easier, they are not without downsides. The underlying assets - Bitcoin, Ethereum and others - remain highly volatile. Management fees can eat into returns over time, and some ETFs may experience tracking error, particularly those based on futures. Additionally, regulatory clarity is still evolving and varies significantly across jurisdictions, affecting ETF availability and structure.

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