According to the American Securities and Exchange Commission (SEC) published the first spot last week Exchange-traded funds (ETFs) in the United States, no fewer than 11 have been registered in the country. There is now even more competition between exchange traded funds and “normal” crypto exchanges. You can read about the differences between the two options here.
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Crypto exchanges and exchanges are not the same
The option that has been around the longest is the “traditional” crypto exchange. There is little tradition in this, because before these exchanges were created, the phenomenon of Bitcoin (BTC) and crypto did not even exist.
Therefore, there are some differences between a crypto exchange and a traditional exchange. With the latter, for example, shares cannot be easily moved from one place to another, nor are they held by that company.
This is usually the case with a crypto exchange. You buy your Bitcoins or other coins from this company, which also sells them and holds them for you. This means that you face more risk with a crypto exchange as the platform can be hacked. Unfortunately, incidents like this occur regularly, although some platforms are better at preventing them than others.
Once an exchange's wallets are hacked, a hacker can often steal money from many customers. Blockchains allow the hacker to move his prey himself. When you trade through an exchange, this is not easy to do.
Some exchanges choose to store customer assets elsewhere. For example, the Dutch company Bitvavo has set up its own foundation for this purpose, so that customer assets are separated from the trading platform.
Crypto exchange funds work differently
Nowadays there are also cryptocurrency exchange funds. They work completely differently than regular crypto exchanges because these funds are listed on an exchange. You invest in such a fund through a broker that is independent of the stock exchange itself.
The exchange fund itself invests in cryptocurrencies on behalf of the investor. Where exactly your money is invested depends on the fund. Some funds focus specifically on one coin, while other funds buy multiple coins and sometimes even more than just cryptocurrencies. A good example of this is the Next Generation Internet ETF from ARK Invest.
If you invest in a specific coin, it is also possible that the price will not match the price of the same asset on a crypto exchange. For example, Grayscale's GBTC Bitcoin fund was previously more volatile than Bitcoin itself. This meant that you could buy at a “discount” in difficult times and sell at a premium in bull markets. Nowadays, GBTC is a spot ETF, meaning it closely follows the normal Bitcoin price.
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