To begin with, it is essential to know what cryptocurrencies are. They are digital assets that allow financial transactions to be carried out in a decentralized manner. That is, without the interference of intermediaries, such as the Government or a central bank.
Cryptocurrencies work like conventional currencies, with market value, but they only exist in the virtual world. Generally, transactions with them are recorded using a technology called a blockchain. In practice, it is a great digital, immutable and incorruptible ledger.
The first digital currency created was bitcoin, in 2009. With the repercussion on the appreciation potential of this asset, other virtual currencies were created. Some examples are ether, litecoin, Cardano etc.
What is an ETF?
Knowing what cryptocurrencies are, you should know the ETF — an acronym for exchange-traded fund. Also known as an index fund, it is a type of investment fund. Therefore, it works as an investment condominium.
The fund raises funds from investors through the sale of shares to carry out allocations in alternatives and modalities that fit its strategy. Thus, investors, called quota holders, acquire the right to participate in the fund’s gains, when any.
In this case, the management of the portfolio is carried out by a professional manager. This means that investors cannot interfere in allocation decisions. In addition, there are several types of investment funds, what differentiates each of them is the focus of the contributions.
For example, real estate funds invest in real estate, while equity funds allocate their resources to stock exchange papers. In the case of ETFs, the strategy is to replicate the theoretical portfolio of a benchmark index in order to achieve results similar to the indicator.
For this, managers invest in the same alternatives and in proportions similar to the theoretical portfolio of the index. In this way, the management of index funds is passive, as there is no intention to outperform the benchmark.
How does a cryptocurrency ETF work?
Now that you understand the concepts presented, it is easier to understand what a cryptocurrency ETF is. As the name implies, it is an index fund that mirrors the theoretical portfolio of an indicator that tracks the performance of cryptocurrencies.
Thus, a cryptocurrency ETF is a vehicle that allows exposure to the digital asset market in a regulated way. After all, this type of fund is authorized and supervised by the Securities and Exchange Commission (CVM).
Is it worth investing in this type of ETF?
To understand whether it is worth investing in a cryptocurrency ETF, it is essential to know the advantages of this investment. First, it is interesting to emphasize that the modality is a regulated way to expose yourself to the crypto market.
In addition, the index fund can be a more practical way to invest, especially for those who have no experience with crypto assets. After all, it is possible to buy shares through B3, without having to deal directly with exchanges.
In addition, the manager is the one who manages the portfolio, and it is not necessary to analyze asset by asset when making the investment. But you have to consider the risks, as cryptocurrency ETFs are in the equity class.
It is also important to know that crypto-assets have high volatility, fluctuating their price in a short period. For this reason, to assess whether it is worth investing in this modality, it is essential to consider:
- Investor profile : generally speaking, cryptocurrency ETFs tend to be better tolerated by moderate and bold profiles, which bear greater risks;
- Objectives : Due to their high volatility, cryptocurrency funds may not be interesting for goals where money needs security, such as emergency reserve.
How to invest in a cryptocurrency ETF?
If you consider that the cryptocurrency ETF can be an interesting investment for your portfolio, it is essential to know how to invest in this modality. First, you must have an investment bank account to access the trading platform, the home broker.
Upon entering the B3 environment, you must search for the identification code of the desired fund and issue the purchase order, indicating the number of shares you wish to purchase. When the transaction is settled, the shares will appear in your portfolio.
In this article, you have discovered what a cryptocurrency ETF is and what to consider to see if it is worth making such an investment. Now, you can use this information to understand if the modality fits your strategy!
