How ETFs Are Powering Your Crypto Portfolio

If you’re investing in crypto, the ETF effect is something you’ll want to know about. It’s quickly becoming a key driver of the major coins that influence the whole market. 

So, what exactly is an ETF? 

An ETF (Exchange Traded Fund) is a type of fund that holds a collection of assets, like stocks, bonds, or even a single security. The key benefit? ETFs are traded on the stock exchange, so they’re easy to buy, sell, and manage—making them more liquid than traditional funds, which can be harder to get in or out of, especially if you want to sell.

Investors love ETFs for their diversification—think S&P 500 Index ETFs—and for their flexibility. The global ETF market has been growing at nearly 20% annually, now reaching over $11 trillion in value.

Crypto ETFs: What’s Changed?

Crypto ETFs have faced a bit of an uphill battle due to regulatory concerns and the volatility of digital assets. Until recently, U.S. regulators, like the SEC, were sceptical, and Bitcoin ETFs faced rejection after rejection. But in January 2024, something big happened: eleven crypto ETFs were approved, including some from major financial players like BlackRock and Fidelity. This new approval sent ripples through the market.

Crypto ETFs initially surged in early 2024, hitting a stall for several months alongside the wider crypto market. However, recently as political and market confidence grew, ETFs saw a renewed spike in popularity, with inflows reaching $3 billion in just three weeks.

Why Does This Matter?

The rise of crypto ETFs has three major impacts:

1. Legitimacy: ETFs give crypto a new level of credibility. With major financial institutions onboard, crypto is gaining acceptance as a financial product rather than just a speculative asset.
2. Demand and Scarcity: Crypto ETFs are often bought and held by investors, which reduces the overall crypto liquidity in the market. With increased demand and a fixed supply, this reduced liquidity can push prices higher.
3. Access for Traditional Investors: ETFs provide an accessible entry point to crypto for traditional investors who might not want to hold the assets directly. They can trade these ETFs just as they would any other stocks, bonds, or commodities, which makes crypto feel less intimidating.

What’s Next?

If the current crypto rally continues, we’re likely to see even more financial institutions adding crypto to their portfolios. And here’s where it gets interesting: large-scale institutional buying could eventually create a shortage of tradeable Bitcoin. When that happens, the price of Bitcoin could soar, as demand outstrips the available supply. We’re already seeing this trend on exchanges, where the amount of Bitcoin for sale decreases as prices go up, as shown in CryptoQuant’s data.