As Bitcoin and Ethereum spot ETFs nearly touched the $2 billion inflow milestone in the Trump inauguration week and new spot ETF applications are taking over the market, we take a look at this phenomenon.

But before we start, let’s first scrutinize what’s happening in the ETF world now.

Bitcoin received over 80% of inbound funds at $1.6 billion in the Trump inauguration week as ETF inflows hit the $1.9 billion mark. This is the second successive week ETF inflows are hovering around the $2 billion milestone. So far this year, ETFs have received $4.8 billion of inbound investments.

Meanwhile, Tuttle Capital Management has applied for ETF approvals for a range of digital assets. In the application submitted to the US SEC, heavyweight cryptos like ChainLink, Cardano, and Polkadot are mentioned but it also includes new meme coins like the official TRUMP and MELANIA which were launched as Donald Trump took office.

Now, that we know how the ETF market is heating up, let’s understand what ETFs are.

What is an Exchange Traded Fund (ETF)?

An Exchange Traded Fund or ETF is kind of a pre-filled shopping cart which makes you ready for the investment market. It makes investment easy for people, specially those who are just beginning the journey by providing an assortment of options. So, you don’t have to shop for each stock separately. Rather they are handed over to you in a shopping cart option.

Although these investment package is traded the same way individual stocks are traded on exchanges, their impact is greater because of the diversity. It all started with the SPDR S&P 500 ETF (SPY) which gradually gave rise to ETF revolution in the US.

What is a Crypto ETF?

Now that you have got a hang of exchange traded funds, let’s apply this to the crypto industry. In the digital assets frontier this assorted shopping cart concept is a VIP pass to hold an extensive crypto portfolio. Apart from the diversity, crypto ETFs are drawing investors attention because of their relative stable nature despite the volatility of the crypto market. ETFs also eradicate the notion of tracking private keys and digital wallets which is a key part of crypto investments.

This helps traders invest in the crypto market through a brokerage account, simplifying digital asset investing as it is as easy buying company shares. They can be used to buy, sell, or track shares, crypto assets and a range of similar technologies.

How Do They Work?

The reason crypto ETFs have been so successful with a year of their approval is their mechanism of operation. ETFs work like well-oiled machines under the vigilance of the US SEC. They are like an all-you-can-invest buffet which always open for new people. This open-ended nature of funds makes it more attractive than slow-moving investment opportunities like mutual funds. They behave like sports cars, which are always racing through the investment scene as prices get updated even when you are trading.

The Vanguard’s Consumer Staples ETF (VDC) is one such ETF which provides you the opportunity to invest in 104 companies like Walmart, Coca-cola and many more. You need not invest individual stocks.

The same thing is applied in the digital assets market, where crypto ETFs are acting as both digital and traditional sandboxes, offering crypto and blockchain companies’ shares investment options.

Types of ETFs

The ETF universe is like a vast investment buffet, each type serving up unique opportunities and flavors for different investment appetites. Let's dive into this fascinating menu of options:

• Passive ETFs have become the bread and butter of many investment portfolios, working like investment autopilots that track broad market indices. These low-maintenance funds mirror everything from the S&P 500 to specialized sector indices, offering a "what you see is what you get" approach to investing. They're particularly appealing because of their lower fees and transparent nature – you always know exactly what's in your investment basket.
• Actively managed ETFs take a different approach, with portfolio managers acting as master chefs who carefully select and adjust ingredients (securities) based on market conditions and opportunities. While they typically charge higher fees than their passive counterparts, these ETFs offer the potential for outperformance through skilled security selection and market timing. The flexibility to adapt to changing market conditions makes them particularly valuable during volatile periods.
• Bond ETFs serve up regular income portions to investors, offering exposure to diverse fixed-income securities. These funds can hold everything from government treasuries to corporate bonds and municipal securities. Unlike individual bonds, these ETFs provide instant diversification and don't have maturity dates, allowing for perpetual exposure to fixed-income markets. They're particularly valuable for investors seeking steady income streams without the complexity of managing individual bond investments.
• Industry or sector ETFs allow investors to place focused bets on specific market segments. For instance, BlackRock's iShares U.S. Technology ETF (IYW) gives you a front-row seat to the tech sector's growth story. These ETFs are perfect for investors who have strong convictions about particular industries but want to spread their risk across multiple companies within that sector.
• Commodity ETFs bring the raw materials market to your portfolio, offering exposure to everything from precious metals to energy products. These funds solve the age-old problem of commodity investment – you get the benefits of price movements without dealing with physical storage or delivery. Gold ETFs, for example, let you participate in gold price movements without needing a personal vault!
• Currency ETFs turn the complex world of foreign exchange into a tradable investment. They're particularly useful for investors looking to hedge against currency risk or speculate on international monetary policies. These funds can track single currencies against the dollar or baskets of currencies, offering various ways to play global currency markets.

Types of Crypto ETFs

The crypto ETF landscape has evolved into an exciting array of investment vehicles, each offering unique exposure to the digital asset space:

• Bitcoin ETFs, the newest stars of the crypto investment world, come in two flavors. Spot Bitcoin ETFs, approved in 2024, directly hold Bitcoin, providing pure exposure to the cryptocurrency's price movements. These funds represent a watershed moment in crypto investing, allowing traditional investors to access Bitcoin through their regular brokerage accounts. Bitcoin futures ETFs, around since 2021, track Bitcoin futures contracts traded on the Chicago Mercantile Exchange, offering a different way to gain Bitcoin exposure.
• Ethereum ETFs joined the party in 2024, marking another milestone in crypto investment accessibility. These funds track the price of Ether, the native currency of the Ethereum blockchain, which powers smart contracts and decentralized applications. The approval of spot Ethereum ETFs has opened up new opportunities for investors interested in the second-largest cryptocurrency by market capitalization.
• Blockchain ETFs offer a broader play on the cryptocurrency revolution by investing in companies developing and implementing blockchain technology. These funds might include positions in crypto miners, blockchain infrastructure providers, and companies integrating blockchain into their operations. It's like investing in the picks and shovels of the digital gold rush rather than the gold itself.
• Bitcoin miner ETFs focus specifically on companies involved in cryptocurrency mining operations. These funds provide exposure to the critical infrastructure supporting the Bitcoin network while offering investors a way to participate in mining economics without the technical complexity of running mining operations. They often include both pure-play mining companies and diversified companies with significant mining operations.

Diversified crypto ETFs represent the ultimate crypto buffet, offering exposure to multiple digital assets through a single investment vehicle. These funds might combine different cryptocurrencies, blockchain companies, and crypto-adjacent businesses, providing broad exposure to the entire digital asset ecosystem.

How to Invest in Crypto ETFs?

For traders wanting to make the most of this current crypto ETF boom, here’s how to do it. Investing in ETFs can be as easy as ordering food through a delivery app. You just need to get the process ingrained in your brain.

The first step is to open a brokerage account which will act as your digital investment wallet. Invest cash funds into this account so that you can purchase the crypto ETF of your choice and within no time you will be part of the community.

However, keep in mind your risk and tolerance levels, even though ETFs are less volatile than the actual crypto market. Invest time to understand your crypto ETF - you must know what it constitutes—do you want only Bitcoin exposure or mix of digital assets or blockchain companies’ shares? Each of these options has its own unique set of risks and benefits, which you should be aware of before investing.

The essence of crypto ETFs is how they convert digital assets from a complex volatile investment opportunity into a digestible one. ETFs have democraticized the crypto market, which is seen in the rising number of new submissions for approvals within a year of Bitcoin and Ethereum approval.

Irrespective of your state, whether a seasoned investor or a novice, crypto ETFs are an avenue to explore. Just remember this sector is rapidly evolving and tossing up new opportunities for investors. It allows people to take part in both the digital and traditional markets and diversify their portfolio. So, hurry up and join the investment table as early as you can.