Crypto Exchange-Traded Funds
for Teens
Published April 24, 2024
A crypto exchange-traded fund (crypto ETF)is one way to get exposure to cryptocurrencies without the hassle of directly holding the digital assets. Specifically, with these ETFs, you don’t have to worry about dealing with crypto exchanges and the headache of keeping your crypto assets in a safe “wallet.” These ETFs behave like index funds except they generally track the performance of cryptocurrencies – specifically, mainly Bitcoin.
The Securities and Exchange Commission regulates the companies that offer crypto ETFs, so they generally have high standards for keeping your crypto investment safe.
Remember that if you are under 18, you will have to invest through custodial accounts established by you parents (or other adults). You would be the beneficiary of the account, but you won’t get control of it until you are either 18 or 21 depending on the state in which you reside. Go here for more information on custodial accounts.
The First Crypto ETFs
The so-called Spot Bitcoin-based ETFs arrived in 2024. Some of the new and prominent Bitcoin ETFs are as follows:
These ETFs should be available through most brokerage accounts, including Fidelity, Schwab, Robinhood, etc. By buying these ETFs, you do not own Bitcoin. You own a share of a fund that tracks the value of Bitcoin. So, unlike real Bitcoin, you can’t transfer the asset to a “wallet,” which you can hold independently of the investing platform. But this may not matter to you as long as you benefit from holding an asset that rises and falls with Bitcoin prices.
Some ETFs offer diversification by holding a basket of diversified cryptocurrencies instead of just Bitcoin.
Crypto ETFs are SIPC Insured
Where you invest in crypto is extremely important because you can lose every penny you invest if the platform is not secure, financially stable, and trustworthy. You need look no further than the FTX scandal, in which $9 billion in customer assets went missing, and the company's founder is now serving 25 years in federal prison.
Crypto ETFs, however, are offered by large financial institutions that the Securities and Exchange Commission regulates. This means the crypto ETF shares you hold may be insured by the Securities Investor Protection Corporation (SIPC) just like stock ETFs up to the coverage limit (currently $500,000 with a $250,000 cash limit).
It's important to emphasize that SIPC insurance does not cover the performance of crypto ETF investments. So, if you make a bad decision on cryptos and lose all your money, the SIPC will not compensate you. However, if the company through which you bought the ETFs somehow absconds with your money, you are protected up to a point.
Bitcoin ETF Expenses are High
Expense ratios are the annual fees investors pay for investing in mutual funds and exchange-traded funds. These expense ratios are based on the size of your investment. For example, the expense ratio for ETFs based on stock indexes such as the S&P 500 or the Dow Jones Industrial Average is as low as 0.04% per year (for the Vanguard Funds).
However, expense ratios for Bitcoin ETFs are as high as 1.5% per annum (for the Grayscale Bitcoin Trust ETF). This expense ratio is ridiculously high and will eat into any profit, if any, you will make each year on your ETF shares. You will have to look around for lower fees from other competitors who want to capture some of Grayscale’s customers by offering discounted expense ratios.
Caution About Investing in Crypto
Cryptocurrencies and crypto ETFs are extremely risky. Before investing in any crypto ETF, you must do your own research and carefully consider your risk tolerance. You should only invest money you can lose without causing you great harm.
Remember that Bitcoin ETFs are especially new, so there needs to be more historical data to assess their performance than other investments like stocks. In addition, regulations around crypto are still evolving, and there is uncertainty about how regulators will view crypto in the future.