Investing In Crypto ETFs vs. Buying Crypto Directly

Investing In Crypto ETFs vs. Buying Crypto Directly

Written by Caroline Macdonald
Fact-checked by Caitlin Wood
Last Updated May 12, 2022

Cryptocurrency is the new “it” finance buzzword, rising in popularity worldwide in the last several years. Crypto can be used for payment of goods and services online or can be purchased using normal currency (e.g. USD, CAD) and held before selling again. 

When it comes to purchasing and investing in crypto, there are two options. Buying crypto directly or investing in ETFs. Deciding which option is right for you depends on what your goals are. 

What Is Cryptocurrency?

As previously stated, cryptocurrency is used to purchase goods and services, however, it can also be sold and traded in order for the investor to swing a profit. Crypto is usually invested similar to other assets such as stocks or metals, and then sold or traded when its value reaches a certain point that the investor is satisfied with. Crypto’s popularity has increased exponentially over the past couple of years, there are a few reasons for this:

  • Cryptocurrency is seen as the currency of the future. Consumers are stocking up now before it becomes necessary to have in the future or too expensive
  • Cryptocurrency will lead to a decentralized financial system which will make banks (a central authority) redundant. Some people see banks as a reason for inflation; this issue would be avoided if crypto becomes normalized
  • Blockchain technology is incredibly secure and all transactions are encrypted, which makes it nearly impossible for crypto to be stolen.

Best Cryptocurrencies By Market Capitalization

To date, there are around 15,000 cryptocurrencies available to buy, trade, or sell. The total value of all cryptocurrencies at the start of December 2021 was $3.2 trillion. Below is a list of the most popular cryptocurrencies by market capitalization:

  1. Bitcoin – Bitcoin boasts a market cap of over $938 billion and is the oldest cryptocurrency available for purchase; it was released in 2009 following the United State’s economic collapse and there are currently almost 19 million Bitcoins in circulation. It is by far the most popular crypto out there
  2. Ethereum – The crypto with the second-largest market capitalization is Ethereum which has a cap of over $478 billion and is currently priced at $4,054.60. There are over 118 million ETH in circulation.
  3. Binance Coin – BNB has a market cap of over $94 billion; this coin was previously a part of the Ethereum blockchain but became the native currency of its own blockchain.
  4. Tether – THT is currently priced at a dollar per token and has a market capitalization of $76 billion and has a circulating supply of over 76 billion
  5. Solano – Solano has a market capitalization of almost $53 billion and currently trades for $171.13
BitBuy

Ways To Invest In Crypto 

When it comes to investing in crypto, buyers have two options. They can buy crypto directly or they can purchase crypto ETFs. Crypto is formed with blockchain technology which is a digital ledger of transactions that are decentralized and difficult to hack/alter; when a block (a transaction) is added to the chain, everyone included is able to see it and they are all encrypted. By buying crypto directly, you will become a part of the blockchain and if you opt for a crypto ETF, your ownership of the token is indirect.

Buying Crypto ETFs

Crypto is fairly new, so if you’re hesitant and do not want to purchase it directly, you can buy the stocks of publicly traded companies such as Coinbase which are used to facilitate crypto exchange and storage or invest in an exchange like CME Group (NASDAQ: CME) which facilitates crypto futures trading. 

Another way to profit off of crypto without buying it directly is investing in crypto ETFs. The term ETF stands for exchange-traded funds. With regular investing, an ETF is a basket of assets/securities, and with crypto ETFs, it is a similar idea – they track the prices of one or more digital tokens and the investors are not required to invest directly in crypto. ETFs are often used by investors for diversification purposes and there are a few available for crypto investors that will be discussed later on that including the Purpose Bitcoin ETF (BTCC), Ether ETF (ETHR), etc.

Pros Of Investing In Crypto ETFs

Easier To Invest In

Crypto ETFs are easier to use and investors are not required to learn about crypto wallets and exchanges as well as other complexities associated with blockchain technology. Investors won’t need to worry about the risks involved with crypto investing as it is an underdeveloped system that is not as regulated as ETF investing.

ETFs are sold, bought, and held in typical brokerage accounts through banks or on applications like Wealthsimple and Coinbase. Investing in ETFs does not require having a crypto wallet that could potentially be broken into.

Tax Benefits 

Canadian investors have the advantage of using a tax-free savings account (TFSA) or a registered retirement savings plan (RRSP) to invest in crypto ETFs and reap tax benefits.

When investing in a TFSA, any profits/gains made through investments are tax-free. While an RRSP provides tax breaks to those who invest in them.

More Safety

ETFs, as a rule, are far safer as they are issued by regulated companies which reduces the overall risk for fraud, scandals, or collapse. Because ETFs are traded on a highly regulated exchange, they are subject to more intense security laws as a preventative measure for fraud. This is different from regular cryptocurrency exchanges as they are newer and subject to far fewer regulations; digital assets present a higher risk that is not found in ETFs

Diversity

As previously discussed, ETFs are a basket of different tokens and currencies that will diversify your investments and allow more flexibility when one of the tokens in the ETF drops in price, the loss is mitigated. An example of the diversity in ETFs is seen within Bitcoin ETFs; they can include other popular tokens like Ethereum which allows investors to control their risk exposure. ETFs allow the investor to distribute their capital, and their risk, across multiple coins.

Higher Liquidity

ETFs are highly liquid in comparison to other possible investments. Cryptocurrencies have a more complex mechanism for investing whereas ETFs are simple to buy and sell and steady liquidity will have positive implications for the tokens included in the ETF. The higher liquidity found in ETFs can be used to meet the high demand from investors due to some exchanges not having enough volume.

Check out the best GIC rates in Canada this year.

Cons Of Investing In Crypto ETFs

Lower Volatility

One of the key pitfalls of ETFs is the fact that they contribute to the reduction of cryptocurrency volatility, and market volatility is often something investors find attractive. These new crypto ETFs are less focused on direct trading which results in less volatility which may lead to gradually becoming more stabilized and regulated.

More Regulation 

Although the highly regulated nature of ETFs can be seen as a good thing, it also proves to be a disadvantage. One of the reasons people invest in crypto is because it is a currency independent of financial regulators and centralized authorities, if they become more regulated through ETFs they will become just another asset controlled by the government.

Trading Limitations

Investing in a crypto ETF does not make you an owner of any cryptocurrency which limits actual crypto use. Crypto ETF shareholders cannot:

  • Exchange/trade their tokens. As an example, they will not be able to trade an Ethereum token for a Bitcoin token.
  • They do not reap the benefits of blockchain and a decentralized banking system; they are subject to more regulation

Fees

When compared to a regular ETF, crypto ETF fees are considered to be high. The Grayscale Bitcoin Investment Trust (a crypto ETF) charges an annual fee of 2% of the funds’ overall assets; when compared to some gold ETFs that only charge a fee of 0.4%. Crypto ETFs charge roughly 5x more. 

Buying Cryptocurrency Directly

There are several different platforms on which an investor can purchase crypto directly, these are called exchanges and many of them are available online or as mobile apps. Some of the more popular exchanges are CoinBase, Wealthsimple Crypto, and Coinberry. These exchanges can also be used to store your crypto assets but it is recommended that once you have accumulated a significant number of assets, you store them in a crypto wallet. If you believe that cryptocurrency usage will become wildly popular and more mainstream in the future, then it would be smart for you to purchase crypto directly as a means to diversify your portfolio and holdings.

Pros of Buying Crypto Directly

Higher Gains & Volatility 

Cryptocurrencies behave similarly to regular currency, although crypto has far higher volatility. A big advantage of crypto investing is the potential to make a large profit due to immense price fluctuations seen in crypto markets.

Asset Trading 

By using crypto, asset transactions can be sped up and lowered in price. Cryptocurrencies, like Bitcoin, are a means for people to transfer the ownership of assets.

Crypto Transaction Prices 

Crypto transaction fees are typically less expensive than your normal electronic financial transaction fees. Crypto transactions cost less than 1% of what is being purchased whereas a credit card transaction might be 1.5% to 3%.

Hedges Against Inflation 

Cryptocurrencies all have a finite amount of tokens, for example, there have only ever been 21 million Bitcoins that exist; this makes them a natural hedge against inflation. It is theorized that cryptocurrencies will keep up with rates of inflation that will negatively affect regular currency.

Should you consider borrowing money to invest?

Cons Of Buying Crypto Directly

Scalability

Crypto is growing at a very fast rate and there is debate if the network will be able to handle the number of transactions in the near future; if crypto technology doesn’t evolve it will be unable to compete with mainstream payment providers like Visa or standard debit cards.

Security

Where many cryptocurrencies are traded and held online, they are vulnerable to various cyber attacks and fraud attempts. Crypto assets are subject to different and more intense cybersecurity risks than a regular centralized bank would be.

Digital Wallets

There are some prevalent security issues with digital wallets that are used to store cryptocurrencies. If someone can access your account or hack into it, they can easily steal all of your crypto assets. This is not a security issue seen within the actual currencies as they are encrypted, it is a risk that pertains to the crypto user/investor.

Types Of Crypto ETFs

3iQ CoinShares Bitcoin ETF (BTCQ)Purpose Bitcoin ETF (BTCC)Evolve Ether ETF (ETHR)
Management Fees1.00%1.00%0.75%
InceptionMarch 2021February 2021April 2021
Where to BuyBrokerages (QuestTrade, Wealth Simple, etc) Brokerages (QuestTrade, Wealth Simple, etc) Brokerages (QuestTrade, Wealth Simple, etc) 
TFSA and RRSP EligibleYesYesYes
Primary CryptoBitcoinBitcoinEthereum

Investing In Crypto FAQs

Should I buy a Bitcoin or a Bitcoin ETF?

If you are more risk-averse and skeptical of the cryptocurrency market, then it is definitely advisable to invest in a Bitcoin ETF as opposed to the actual cryptocurrency. If you are an investor looking to spend with cryptocurrency or make international transfers/transactions, it is advisable to purchase Bitcoin directly.

What type of crypto can you buy directly?

There are many cryptos you can buy directly like Ethereum, Bitcoin, Zeon, CAT, Tether, Solana, and more.

Where can you buy crypto ETFs?

Crypto ETFs can be purchased on various brokerage platforms such as Wealthsimple Crypto or QuestTrade. They can also be purchased through your bank’s investing platform.

Where can you directly buy cryptocurrencies?

Cryptocurrencies are purchased on crypto exchanges like Coinbase or CoinBerry; these platforms can also store crypto.

Rating of 5/5 based on 1 vote.

Caroline is a 4th year commerce student at Memorial University of Newfoundland pursuing a focus in finance. She is a member of Memorial University’s student managed investment fund and acts as a sector manager in the industrial and financial sectors. Caroline joined the Loans Canada team in 2021 and rediscovered her passion for writing and media creation. In her free time she enjoys spending time with friends and family and reading.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Save With Loans Canada

Special Offers

You Could Win Up To $5,000

You Could Win Up To $5,000
Expires Soon

Borrow up to $50,000 from Fairstone and be automatically entered to win up to $5,000!*

View Offer
Earn 5% Cash Back With Neo

Earn 5% Cash Back With Neo
No annual fee!

Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.

View Offer
Build Credit With Refresh

Build Credit With Refresh
Popular

Build credit while spending money with the Refresh Financial VISA card.

View Offer
Build Credit For $10/Month

Build Credit For $10/Month
Popular

With KOHO’s prepaid card you can build a better credit score for just $10/month.

View Offer
Best Personal Loan Provider by Greedy Rates
Icon

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.