A Comprehensive Guide to Crypto ETPs and ETNs

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Understanding Crypto Investment Vehicles

While often called "crypto ETFs" out of habit, these products aren't necessarily true ETFs in the traditional sense. Exchange-Traded Funds (ETFs) typically track an index from providers like MSCI or FTSE, which doesn't exist in the cryptocurrency world. Without index tracking, two other designations fit these products better: ETNs and ETPs.

Exchange-Traded Notes (ETNs) represent debt instruments issued by financial institutions. The issuer guarantees that a specific portion of the ETN corresponds to a predetermined amount of cryptocurrency. Exchange-Traded Products (ETPs) serve as a broader category that encompasses various traded instruments, including those tracking crypto assets. Many products we discuss in this guide carry either the ETN or ETP designation.

Another crucial consideration involves taxation differences. Cryptocurrencies aren't classified as traditional capital investments like stocks, meaning they don't incur capital gains tax in the same way. If you sell your cryptocurrency within one year of purchase, profits are taxed at your income tax rate—which can represent a significant disadvantage. However, if you hold your cryptocurrencies for more than one year, the sale becomes tax-free. This contrasts sharply with crypto ETNs and ETPs, where standard capital gains tax regulations apply regardless of holding period.

The Crypto Currency Landscape

The market offers various funds and debt instruments, with most focusing on Bitcoin, some including Ethereum, and few covering other coins from the crypto universe. It's important to understand that investing in crypto ETPs doesn't provide exposure to the entire "alt-coin market," which encompasses hundreds of coins and projects. Instead, you're primarily investing in the two market leaders: BTC and ETH.

While these major cryptocurrencies might carry relatively lower risk compared to smaller alt-coins, they also lack the explosive growth potential that some alternative cryptocurrencies have demonstrated. Bitcoin, in particular, rarely experiences the dramatic price surges that characterize smaller market cap digital assets.

How to Invest in Crypto ETPs

When considering crypto ETP investments, several factors deserve attention:

We'll also explore an alternative approach: gaining exposure to the crypto market without directly or indirectly owning coins, instead investing in companies operating within the crypto ecosystem.

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Investing in Major Cryptocurrencies Through ETNs

Below we examine several options for investing in major cryptocurrencies through ETNs. Note that these products typically focus on single cryptocurrencies rather than baskets of multiple digital assets, unlike traditional equity ETFs. If you want exposure to both ETH and BTC, you'll need to purchase two separate ETNs.

WisdomTree Bitcoin ETN (ISIN: GB00BJYDH287)

WisdomTree is primarily known as a precious metals fund issuer, establishing them as a reputable provider. Their Bitcoin ETN offers Bitcoin exposure with a 0.95% total expense ratio (TER) and currently holds over €230 million in assets. This fund represents a straightforward solution for adding Bitcoin to your portfolio.

Other Bitcoin options include:

Generally, the WisdomTree ETN represents a solid choice due to its lower TER and the issuer's established reputation.

VanEck Vectors Ethereum ETN (ISIN: DE000A3GPSP7)

For Ethereum exposure, this ETN offers a potential solution with a 1% TER and over €78 million in assets. The fund employs a tax-efficient structure. While currently irrelevant for BTC and ETH, this could become significant if Ethereum transitions to Proof-of-Stake, potentially generating staking rewards that would be automatically reinvested.

Alternative Ethereum options include:

HANetf LTCetc ETC Group Physical Litecoin (ISIN: DE000A3GN5J9)

For Litecoin exposure, this ETN presents an option, though with only €6 million in assets, it suffers from limited liquidity. The 2% TER is also relatively high.

Other single-coin ETNs available typically face similar challenges: limited assets under management and higher costs. If you seek exposure to a specific cryptocurrency, research whether an ETN exists for that particular coin. Generally, these instruments work best for Bitcoin and Ethereum exposure, as they maintain sufficient trading volume and asset levels.

Multi-Coin Crypto ETPs (That Your Broker Might Restrict)

Some over-the-counter (OTC) solutions exist that offer limited access in certain markets. Whether you can purchase them depends primarily on your broker. Since these products aren't publicly listed, they typically require OTC fixed-price transactions. Traditional banks often support these transactions while app-based neobrokers typically do not. Additionally, OTC transaction fees make these products less suitable for smaller investments—consider four-figure minimums for cost efficiency.

21Shares Crypto Basket Index ETP (ISIN CH0445689208)

The 21Shares Crypto Basket Index ETP invests in the five largest cryptocurrencies by market capitalization, with Bitcoin and Ethereum forming the core positions. The composition is dynamic and regularly adjusted according to market developments.

Key Components:

The weighting of individual cryptocurrencies follows market capitalization, creating a natural balance between established cryptocurrencies and growth opportunities. Physical backing of the cryptocurrencies ensures full portfolio coverage at all times.

Bitwise 10 Crypto Index Fund (BITW) (ISIN: US0917491013)

The Bitwise fund most closely resembles a traditional "ETF" as it actually contains 10 cryptocurrencies—though not necessarily weighted strictly by market capitalization as one might expect from a conventional ETF. Bitcoin and Ethereum are naturally included, along with promising alt-coins like Chainlink. This fund represents an option if you want exposure beyond the two largest coins. The portfolio is regularly adjusted, typically monthly.

The selection aims to represent legitimate and promising projects with sufficient market capitalization, manageable risk, and promising returns. Such a fund offers an attractive option if you want exposure to coins like Chainlink (LINK) that currently lack dedicated ETNs. However, you should research OTC transaction costs with your broker beforehand.

The TER is 2.5%, the fund is US-based, and it holds over $650 million in assets.

Alternative Approach: Companies Interacting With Crypto

The VanEck Crypto and Blockchain Innovators UCITS ETF offers exposure to companies deriving at least 50% of their revenue from digital assets or blockchain technology. This accumulating ETF carries a 0.65% TER.

The fund physically replicates the MVIS Global Digital Assets Equity Index and holds 25 positions. The largest individual positions include MicroStrategy (10.20%), Block Inc. (7.04%), and Coinbase Global (7.03%). Geographically, the focus is clearly on the United States (64.74%), followed by Germany (5.62%) and Australia (4.20%). Sector-wise, technology dominates with 64.33%, followed by financials at 17.17%.

Launched on April 30, 2021, the fund currently manages €309 million in assets. Performance has shown high volatility—with 2024 returns at +88.28% following a 263.35% gain in 2023. Conversely, the ETF suffered an 84.93% loss in 2022.

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Frequently Asked Questions

What's the difference between ETFs, ETNs, and ETPs?
ETFs track indexes and hold underlying assets directly. ETNs are debt instruments that track assets without direct ownership. ETPs serve as an umbrella term covering both ETFs and ETNs along with other exchange-traded products.

Why choose crypto ETPs over direct cryptocurrency ownership?
ETPs offer familiar brokerage account integration, eliminate concerns about digital wallet security, and provide tax reporting simplicity. However, they typically involve management fees and may not offer the same potential tax advantages as long-term direct crypto ownership.

How do taxes work for crypto ETPs?
Unlike direct cryptocurrency holdings that can become tax-free after one year, crypto ETPs are subject to standard capital gains tax regulations regardless of holding period. Always consult a tax professional for advice specific to your situation.

What are the main risks of crypto ETPs?
These products carry market volatility risk, issuer risk (particularly for ETNs), liquidity risk for smaller funds, and tracking error risk where the product might not perfectly follow its underlying asset.

Can I lose all my money investing in crypto ETPs?
While complete loss is possible in extreme situations like issuer insolvency (for ETNs) or catastrophic market events, diversified products and those with physical backing generally offer some protection against total loss.

How do I choose between different Bitcoin or Ethereum ETPs?
Consider factors like total expense ratio, assets under management (indicating liquidity), issuer reputation, physical backing, and trading volume. Also check whether your broker offers access to specific products and what transaction fees apply.