The combination of active management and cryptocurrency exposure has created some of the highest-performing exchange-traded funds (ETFs) so far this year. While passively managed spot bitcoin ETFs have delivered solid returns, a significant portion of the top performers are actively managed funds that utilize futures contracts.
This article explores the best crypto ETFs by performance, explains how futures-based strategies work, and outlines the key benefits and drawbacks for investors considering this approach.
Top Crypto ETFs by Year-to-Date Performance
The following table highlights some of the best-performing crypto-focused ETFs in 2024. It is important to note that returns are dynamic and can change with market conditions.
| Ticker | Fund Name | Expense Ratio | Assets Under Management | YTD Return |
|---|---|---|---|---|
| GBTC | Grayscale Bitcoin Trust ETF | 1.50% | $19.7B | 77.67% |
| BTF | Valkyrie Bitcoin and Ether Strategy ETF | 1.24% | $56.4M | 59.61% |
| ARKA | ARK 21Shares Active Bitcoin Futures Strategy ETF | 0.70% | $18.1M | 57.55% |
| BITC | Bitwise Bitcoin Strategy Optimum Roll ETF | 0.88% | $13.1M | 57.34% |
| DEFI | Hashdex Bitcoin ETF | 0.945% | $12.6M | 56.15% |
Performance data is as of June 3, 2024. Leveraged ETFs were excluded from this analysis.
How Actively Managed Crypto ETFs Work
Actively managed crypto ETFs that use futures provide investors with regulated exposure to cryptocurrency price movements without the funds directly holding digital assets like Bitcoin or Ethereum.
Instead, these ETFs invest in futures contracts. A futures contract is a standardized legal agreement to buy or sell a specific asset—in this case, a cryptocurrency—at a predetermined price on a set future date. The value of these contracts fluctuates based on the market's expectations for the future price of the underlying crypto asset.
Fund managers actively roll these contracts. As a contract nears its expiration date, the manager sells it and buys a new contract with a later expiration to maintain the fund's exposure. This active management is central to the fund's strategy and differentiates it from a passive, buy-and-hold approach.
Advantages of Futures-Based Crypto ETFs
This investment structure offers several distinct benefits for investors:
- Accessibility and Convenience: Investors can gain crypto market exposure through a traditional brokerage account, bypassing the technical challenges of managing private keys, digital wallets, or using cryptocurrency exchanges.
- Regulatory Oversight: These products are regulated by financial authorities like the SEC, offering a layer of investor protection not always present on unregulated crypto trading platforms.
- Liquidity: They typically trade on major exchanges with high volume, providing investors with the ease of buying and selling shares throughout the trading day.
Potential Drawbacks to Consider
While convenient, these funds also come with unique risks:
- Tracking Error: The process of rolling futures contracts can cause the ETF's performance to deviate from the spot price of the actual cryptocurrency over time. This difference, known as "basis," can lead to a tracking error.
- Management Fees: The active management and complexity of trading futures generally result in higher expense ratios compared to spot cryptocurrency ETFs, which can eat into overall returns.
- Counterparty Risk: There is a risk that the other party involved in the futures contract could default on their obligation, potentially leading to losses for the fund.
Active Futures ETFs vs. Passive Spot ETFs
The key difference between these two popular ETF types lies in what they hold and how they are managed.
A spot crypto ETF directly holds the underlying cryptocurrency. Its goal is to track the asset's price as closely as possible, and its management is generally passive.
A futures-based crypto ETF does not hold the cryptocurrency itself. It holds futures contracts, and its performance is tied to the prices of those contracts. The active management required to roll these contracts introduces additional variables, such as cost and potential tracking error, that do not affect spot ETFs in the same way.
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Frequently Asked Questions
What is an actively managed crypto ETF?
An actively managed crypto ETF is a fund where a portfolio manager makes deliberate decisions about buying and selling assets, such as futures contracts, to try and outperform the market or achieve a specific investment objective. This contrasts with passive ETFs, which simply track an index.
Why do futures-based ETFs have tracking error?
Tracking error occurs primarily due to the "roll cost." When a fund manager sells an expiring futures contract to buy a new one, the price of the new contract may be higher or lower than the spot price of the cryptocurrency. This constant rolling process can cause the fund's value to drift from the actual spot price over time.
Are futures-based crypto ETFs safer than buying crypto directly?
They offer safety in terms of regulatory oversight and custodianship, as they are held in a traditional brokerage account. However, they still carry the inherent volatility and market risk of the cryptocurrency market, plus the additional risks of tracking error and potentially higher fees.
Can I redeem shares of a futures ETF for actual bitcoin?
No. Futures-based crypto ETFs provide exposure to price movements through derivatives. They do not grant ownership of the underlying digital assets, so you cannot redeem your shares for bitcoin or ether.
Who might consider investing in an actively managed crypto futures ETF?
This option may suit investors who want crypto market exposure but prefer the familiar structure of a regulated ETF, want to avoid the technical hurdles of direct ownership, and believe an active manager can navigate the futures market effectively.
How important is the expense ratio for these funds?
Very important. Given the volatility of crypto assets, high fees can significantly impact net returns over time. It's crucial to compare expense ratios among similar funds and weigh the cost against the potential benefits of active management.
Final Thoughts on Crypto Strategy ETFs
Actively managed, futures-based crypto ETFs present a compelling option for gaining regulated exposure to digital asset prices within a familiar investment framework. Their strong performance in the current market highlights the potential value of an active strategy.
However, investors must carefully weigh the benefits of convenience and regulation against the costs of fees and the risks of tracking error. Thorough research and a clear understanding of your investment goals are essential before adding these sophisticated instruments to your portfolio.