Crypto · Intermediate · 5 min

Crypto ETPs and spot ETFs

You can explain how exchange-traded crypto products work in the US and the EU, what they solve compared with holding coins, and which risks remain.

Crypto with a ticker

Buying crypto used to mean opening an account at a crypto exchange, setting up a wallet and guarding a seed phrase. For many investors, that was the main reason not to bother.

Exchange-traded crypto products changed that. Bitcoin or ether can now sit in a normal brokerage account, next to shares and ETFs. This lesson explains how these products work, how the US and the EU differ, and what they do not change.

Keys solved, swings stay

A spot crypto ETP is an exchange-traded product that holds the actual crypto asset, rather than futures, and tracks its price.

United States. After rejecting many applications for years, the SEC approved the listing of spot bitcoin ETPs on 10 January 2024, and spot ether ETPs began trading in July 2024. They are set up as trusts that hold the coins with a custodian. In his statement, the SEC chair stressed that the approval was not an approval or endorsement of bitcoin itself.

European Union. EU funds under the UCITS rules must be diversified and cannot hold a single crypto asset. Crypto exposure in Europe therefore usually comes as exchange-traded notes, debt securities that are often backed by the coins they track. As you saw in the rubric on ETFs, that adds the question of the issuer and the collateral.

What these products solve: no wallet, no private keys, no crypto exchange account. You buy and sell through your broker, at exchange hours, with the investor protection of a securities account for the product itself.

What they do not solve, according to the SEC's 2024 bulletin:

Volatility: bitcoin and ether remain highly speculative, and the product carries their full price swings.
Fees: the trust earns no income, so the sponsor fee is paid by selling coins. Each payment reduces the crypto held per share.
Tracking gaps: the share price can drift from the coin's price.
Underlying markets: spot crypto trading platforms are not registered with the SEC, which raises the risk of fraud and manipulation in the market that sets the price.

Fee shrinks the coins

A fictional spot bitcoin ETP charges a yearly fee of 0.25%. Each share starts with 0.001 bitcoin behind it.

Each year, the trust sells about 0.25% of its bitcoin to pay the fee.
After ten years, each share holds about 0.000975 bitcoin, roughly 2.5% less.
If the bitcoin price doubles, the share roughly doubles too, minus that shrinkage.

The fee is small next to bitcoin's swings, but it never stops. Holding coins yourself avoids it, but brings back the key risks from the last two lessons.

Common mistakes

"Approved means safe." The SEC explicitly did not endorse bitcoin.
Treating an EU crypto note like a fund. It is a debt security with issuer risk.
Ignoring the fee. It reduces the coins per share every year.
Expecting calmer prices. The product swings as much as the coin.

The takeaway

Crypto ETPs let you hold bitcoin or ether through a brokerage account. They remove the key problem, not the price swings, and fees slowly reduce the coins per share.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the product that, in the EU, is usually a debt security rather than a fund.

Tap the chart.

UCITS funds cannot hold a single crypto asset, so EU crypto products are usually structured as notes, often backed by the coins.
2When did the SEC approve the listing of spot bitcoin ETPs?

The SEC approved them on 10 January 2024. Its chair stressed that this was not an approval or endorsement of bitcoin itself.
3Why does the amount of bitcoin behind each share of a spot ETP slowly shrink?

The SEC bulletin explains that each fee payment reduces the crypto held per share, since the trust earns no income.
4Does a crypto ETP reduce bitcoin's price swings?

The SEC describes bitcoin and ether as highly speculative and volatile, even when held through an ETP.

of 4 correct.