Active management leads the best crypto ETFs of 2024

Cryptocurrency – Trading – Chart – ETF

Active management and cryptocurrencies are attracting investor attention in 2024. Combine these two things and you get some of the best-performing exchange-traded funds of the year.

Although passively managed spot Bitcoin ETFs have performed well, three of the top five crypto ETFs, as measured by year-to-date performance, are actively managed futures funds.

Keeping this place in mind Bitcoin ETF only started trading on January 12, the Grayscale Bitcoin Trust ETF (GBTC)which began the year as a closed-end fund, leads all crypto ETFs with a year-to-date gain of nearly 78%.

Best crypto ETFs by 2024

Performance data as of June 3, 2024. Leveraged ETF were not included in our research.

Crypto ETFs, Futures and Active Management

Futures-based crypto ETFs actively invest in contracts that mimic cryptocurrency prices, providing regulated exposure without directly owning the underlying digital assets they track. However, they may deviate slightly due to renewal of expiring contracts and possible tracking errors.

A futures contract is an agreement between two parties to buy or sell a certain asset (in this case, a cryptocurrency like Ethereum or Bitcoin) at a predetermined price and on a specific future date.

The value of futures contracts fluctuates based on price expectations of the underlying cryptocurrency. If the price of the cryptocurrency increases, the value of the futures contracts also increases, and vice versa. By holding these futures contracts, the ETF aims to track the price movements of the cryptocurrency.

Benefits of Futures-Based Crypto ETFs

• Convenience: Investors can gain exposure to cryptocurrency price movements without having to deal with the complexities of managing private keys or crypto wallets.

• Regulation: These ETFs are regulated by financial authorities, primarily the Securities and Exchange Commission (SEC), providing a potentially safer alternative to unregulated cryptocurrency exchanges.

• Potential liquidity: Futures-based ETFs generally offer greater liquidity than directly buying and selling cryptocurrencies on exchanges.

Disadvantages of Futures-Based Crypto ETFs

• Tracking error: As mentioned earlier, rolling futures contracts can introduce tracking error, meaning the price of the ETF might not perfectly reflect the price action of the underlying cryptocurrency.

• Counterparty risk: There is a risk of default by the counterparty to the futures contract, which could result in losses for the ETF and its investors.

• Costs: Management fees associated with the ETF may reduce potential returns.

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Futures-Based Crypto ETFs and Spot Funds

Unlike owning the actual cryptocurrency, like a bitcoin spot ETF, futures contracts have expiration dates. As the expiration date approaches, the ETF must roll over its contracts to maintain its exposure. This involves actively selling expiring contracts and simultaneously purchasing new contracts with additional expiration dates.

The difference between the current spot price of the cryptocurrency and the futures price may cause the ETF price to vary slightly from the actual price movement of the cryptocurrency over time. This difference is called the base.

Fees associated with buying and selling futures contracts generally result in higher expense ratios than spot ETFs and can also contribute to a fund’s tracking error.

Conclusion on Investing in Futures-Based Crypto ETFs

Futures-based crypto ETFs provide a regulated and convenient way to gain exposure to cryptocurrency prices. However, investors should be aware of the tracking error, counterparty risk and fees involved before investing. It is also important to note that these ETFs do not convey ownership of the underlying cryptocurrency and may not perfectly replicate its price movements.

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