Exchange-traded funds (ETFs) have grown to become the most popular of all exchange-traded products. Only available for purchase by major brokers and dealers, ETFs operate by packaging up assets such as stocks, bonds or commodities, the ownership of which is divided into shares and sold to shareholders. In many ways ETFs function in a similar way to mutual funds, but benefit from lower transaction costs which make them attractive for day-trading in the markets. By 2015, ETFs had accounted for nearly $2 trillion in investments in the US alone, with some 1800 different products available in every niche of the market.
Until recently, cryptocurrency markets have not benefited from the ease and utility of ETF products, but there have been significant developments over recent weeks and months. Indeed, during 2018 alone there have been no less than seven blockchain ETFs brought to market. OKEx and Huobi Pro have both launched crypto-related products recently, Nasdaq have launched the NexGen Economy China ETF and the Toronto Stock Exchange have listed the Horizons Blockchain Technology and Hardware Index. Such products enable investors to support the development of the blockchain sector, and perhaps most importantly blockchain infrastructure, rather than the currencies and tokens themselves.
Moves to list ETFs on exchanges have been blocked on a number of occasions by the SEC, perhaps most notably in the case of Winkelvoss brothers who had their proposal to list a Bitcoin-related ETF rejected in early 2017. It has emerged, however, that the brothers’ application for a patent to develop cryptocurrency ETFs has recently been granted, so a blockchain instrument on the Winkelvoss-backed Gemini exchange is expected soon. It appears the SEC may have begun to soften their stance on the use of such instruments in the blockchain sector, leading some to suggest that ETFs may be the new gold rush in the ever-evolving world of crypto.
