What Are Crypto ETPs and How Do They Work?

Key Takeaways

• Crypto ETPs let users invest in digital assets without holding them directly.
• There are three main types of Crypto ETPs: ETFs, ETNs, and ETCs—each with different structures and risk levels.
• Benefits of Crypto ETPs include easier access, diversification, and regulated security.
• Risks include high volatility, changing regulations, fees, and potential market manipulation.

New projects, platforms, and tokens constantly shape the crypto space, and the same shift applies to cryptocurrency investment products.

Crypto exchange-traded products (ETPs) represent one of the latest links between digital assets and traditional financial markets. These products challenge old models while learning from them, blending the speed of crypto with the familiarity of stock market tools.

Crypto ETPs include three specific products: Exchange-traded funds (ETFs), exchange-traded notes (ETNs), and exchange-traded commodities (ETCs).

Each has its unique particularities. Knowing how crypto ETPs work—and what risks and benefits they bring—helps users make informed choices in this growing market. This article explores crypto ETPs in depth.

Crypto Exchange-Traded Products (ETPs), Explained 

Crypto ETPs are an alternative for users to invest in digital assets. As financial tools, they are a bridge between traditional finance and blockchain.

Using ETPs, investors do not need to hold cryptocurrencies directly. Instead, they can use these financial products to trade on traditional stock exchanges and track the price of digital assets like Bitcoin, Solana or Ether. 

Types of Crypto ETPs

ETPs come in three main types. They aim to follow the price of digital assets, but each uses a different structure—some hold crypto directly, and others track its value through contracts or debt.

Crypto Exchange-Traded Funds (ETFs)

Crypto ETFs hold digital assets like Bitcoin (BTC), Ether (ETH), or a mix of several. Instead of buying cryptocurrencies directly, users can buy ETF shares representing a basket of cryptocurrencies. Therefore, they offer diversified exposure.

However, regulations vary by region, limiting availability. 

In the United States, on Jan. 2024, the Securities and Exchange Commission (SEC) approved multiple spot Bitcoin ETFs, including those from major firms such as BlackRock, Fidelity, Ark Invest, and VanEck. This marked a major milestone, as it was the first time the SEC allowed ETFs that hold actual Bitcoin rather than futures.

Example: What Investing in Bitcoin ETFs Means

Let’s understand investing in crypto ETFs through an example. Suppose Alice wants to invest in Bitcoin but doesn’t want to manage her own wallet or deal with crypto exchanges. She buys shares of a Bitcoin ETF. This fund holds real Bitcoin (BTC) on her behalf. By owning shares of the ETF, Alice is indirectly investing in Bitcoin.

• Who invests: Investors looking for exposure to crypto but without handling digital assets directly.
• Where it’s traded: Traditional stock exchanges like the NYSE or NASDAQ.

Crypto Exchange-Traded Notes (ETNs)

ETNs are unsecured debt instruments issued by financial institutions that track the price of cryptocurrencies but do not hold the underlying assets directly. Instead, they provide exposure to price movements by promising to pay returns based on the asset’s performance.

Unlike ETFs, which often hold  actual cryptocurrencies or related futures contracts, ETNs operate as a contract between the investor and the issuer. That means that ETN investors are exposed to issuer credit risk, as they rely on the issuer’s ability to repay, while ETF holders own a share of the fund’s underlying assets.

Example: What Investing in Crypto ETNs Means

Imagine Bob buys a crypto ETN that tracks Ether’s price. Instead of owning the actual Ether, Bob is entering into a contract with a financial institution that promises to pay him based on Ether’s price movements. If the price of ETH rises, Bob benefits. But if the issuer faces financial trouble, Bob could lose his investment.

• Who invests: Investors seeking exposure to crypto prices without owning assets directly, but willing to take on issuer risk.
• Where it’s traded: Stock exchanges, similar to ETFs.

Crypto Exchange-Traded Commodities (ETCs)

ETCs function like traditional commodity-backed investment products. Many issuers hold the actual coins in cold storage, allowing users to gain exposure without handling wallets or private keys. 

For example,. if an ETC holds Bitcoin and its price increases, the value of the ETC reflects the same movement. This setup gives users price exposure without direct ownership.

The difference between crypto ETCs and ETFs is that crypto ETCs focus on one asset, while ETFs may hold a variety of cryptocurrencies or related derivatives contracts like futures. 

Additionally, ETNs rely on debt structures, but ETCs often store the actual coins in reserves. European markets frequently use crypto ETCs to track and mirror the price of individual digital assets.

Example: What Investing in Bitcoin ETCs Means

Suppose Sarah invests in a Bitcoin ETC, where the issuer holds the actual Bitcoin in cold storage. The value of the ETC rises and falls with Bitcoin’s price, but Sarah never needs to deal with wallets or private keys. She gains exposure to Bitcoin’s price movements.

• Who invests: Investors who want exposure to a single cryptocurrency, like Bitcoin, without dealing with wallets.
• Where it’s traded: European stock exchanges or other regulated markets.

Pros and Cons of Each Type of Crypto ETP

Each type of ETP works differently and comes with its own risks, so users should understand how they operate before investing.

How Do Crypto ETPs Work?

The structure of each ETP depends on its type and the market where it trades. Here are some of their main characteristics:

Crypto ETP Trading Mechanism

As mentioned before, users buy and sell Crypto ETPs on regular stock exchanges through brokerage accounts. These products trade like shares and follow market hours. Anyone with access to a brokerage account can trade them without using a crypto wallet.

For example, 21Shares’ Bitcoin ETP (ABTC) and Grayscale’s Bitcoin Trust (GBTC) allow stock market investors to gain exposure to Bitcoin without directly purchasing it on a crypto exchange

Pricing and Liquidity

Prices depend on the value of the tracked cryptocurrency and market demand. Liquidity improves when more users trade the ETP. High trading volume helps reduce the gap between market price and asset value.

Crypto ETP Security 

Issuers store the underlying crypto in secure cold wallets managed by licensed custodians. This setup helps protect the assets from hacks or theft and adds a layer of institutional trust. For example:

• CoinShares Physical Bitcoin (BITC) stores its Bitcoin in cold wallets with Komainu, a regulated custodian.
• ETC Group’s BTCE holds Bitcoin in BitGo’s institutional-grade storage, ensuring security and regulatory compliance.

Regulatory Oversight

Crypto ETPs follow financial rules based on the country where they launch. The SEC oversees  these products in the United States. The first spot Bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Trust (FBTC), were approved in early 2024.

​In Europe, the European Securities and Markets Authority (ESMA) oversees securities markets, including crypto ETPs that qualify as financial instruments. Products like 21Shares’ Crypto Basket ETP (HODL) operate under frameworks like MiFID II, ensuring compliance.

However, ESMA does not regulate individual products directly in every country; instead, it coordinates with national regulators to ensure consistent rules across the EU. It has assessed how existing financial regulations, like the Markets in Financial Instruments Directive II (MiFID II) , apply to crypto-assets and related products.

Benefits of Investing in Crypto ETPs

Some main benefits of crypto ETPs are accessibility, diversification, regulatory oversight and tax efficiency. 

• Accessibility: ​ETPs simplify cryptocurrency investments for traditional investors. Allowing purchases through familiar brokerage accounts removes the need to manage digital wallets and private keys. This approach lowers technical barriers, making diversifying portfolios with digital assets easier.
• Diversification: ETPSs provide diversified exposure to the cryptocurrency market. Instead of investing in a single cryptocurrency, these ETPs track indices, allowing investors to spread their investments across multiple cryptocurrencies. This strategy helps mitigate the volatility risks of individual digital assets, reducing the impact of any single asset’s performance on the overall investment.
• Regulatory oversight: ETPs operate within the established frameworks of traditional financial markets, offering investors enhanced security and transparency. By adhering to established financial regulations, including reporting requirements and custody standards, Crypto ETPs provide protections that may be absent in unregulated crypto markets.
• Tax efficiency: Depending on the jurisdiction, crypto ETPs may offer tax advantages over directly holding cryptocurrencies. For example, they may qualify for capital gains tax rates, unlike direct crypto investments that may be subject to higher taxation.

Risks and Challenges of Crypto ETPs

However, investing in Crypto ETPs may also involve risks and challenges, mainly related to volatility, market manipulation, regulatory uncertainty, and costs. 

• Volatility: Cryptocurrency markets often experience extreme price swings, and crypto ETPs are also subject to these trends. Investors should be aware of volatility since it can lead to substantial losses.
• Regulatory uncertainty: The regulatory landscape for cryptocurrencies and related financial products like ETPs is still evolving. Different regions have varying approaches to regulating these assets, creating uncertainty for investors. Regulation changes can significantly impact Crypto ETPs’ availability, structure, and tax treatment.
• Management fees: Crypto ETPs charge management fees that cover fund operations but can lower overall returns. Investors should always check the expense ratio to understand how it affects long-term performance.
• Market manipulation: Crypto ETPs track the prices of digital assets, but those prices can sometimes be manipulated in less regulated markets. When that happens, ETPs may reflect false price movements, exposing investors to risks that do not come from the assets themselves but from how the market behaves.

How Crypto ETPs Compare to Other Crypto Investment Products

This comparison highlights the distinct features of each investment type, assisting investors in aligning their choices with their financial goals and risk tolerance.

Future of Crypto ETPs

The crypto ETP market is growing fast. In 2025, users can expect new products like covered call ETFs, which aim to earn extra income by selling crypto options on holdings, and Bitcoin bond ETFs offer exposure to Bitcoin through bond-like structures.

Firms like 21Shares already offer ETPs linked to tokens linked to  networks like NEAR, Ondo, Pyth, and Render.  However, regulatory changes could impact ETP accessibility.

With Paul Atkins now leading the SEC, many analysts expect fewer hurdles for crypto ETFs and a more open stance toward crypto-related financial products.

Together, these changes point to a broader range of ETPs and smoother access to crypto through traditional markets.

Conclusion

Crypto ETPs offer a way to access digital assets through familiar stock market tools. They come in different forms—ETFs, ETNs, and ETCs—each with its own structure and level of risk. These products bring benefits like easier access, diversification, and regulatory oversight but also carry risks tied to volatility, fees, and changing rules.

Users can expect more ETP options and new strategies as the market grows. Staying informed about these changes helps users make smarter choices in this fast-moving space.

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