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ETF
Digital asset ETFs: Easier access to blockchain and crypto
Invesco's exchange-traded funds (ETFs) give investors access to digital assets, including cryptocurrencies like bitcoin and blockchains like Ethereum.
Representing over $2 trillion in market capitalization, digital assets are an important, emerging asset class.
Digital assets comprise more than just blockchain and cryptocurrencies like bitcoin and ether.
The companies, technologies, and financial instruments bringing digital assets to life present broad investment opportunities.
Blockchains like Ethereum and cryptocurrencies like bitcoin and ether are transforming the way people, businesses, and governments transact and share information. These digital assets are now a major asset class that investors look to for potential returns and diversification. The cryptocurrency market alone — 20,000 cryptocurrencies strong — represents over $2 trillion in market capitalization.1
The digital assets ecosystem also includes companies that mine cryptocurrencies and provide technology, as well as companies that stand to benefit from blockchain’s many uses.
Each aspect of the digital asset ecosystem presents an opportunity for investors. Even if you don’t plan on investing in digital assets, it’s valuable to understand how all the parts fit together.
A blockchain is an unchangeable database that allows data to be recorded and distributed across countless computers globally. The benefits include decentralization, security, and transparency compared to traditional methods of transacting and sharing information.
The applications of this technology go far beyond cryptocurrencies: Blockchain has a wide — and rapidly expanding — array of uses that could change how consumers, companies, and governments transact and share information. Example uses of blockchain technology include secure medical record storage, insurance claim fraud prevention, and food safety traceability.
Some of today’s most well-known companies are leveraging blockchain technology. An interesting example is Mastercard, which provides financial transaction processing services. The company lets people use its debit and credit products to buy cryptocurrencies. When people want to transact in crypto, Mastercard helps them use their balances everywhere Mastercard is accepted.2
First invented in 2009, cryptocurrency is decentralized digital money based on a blockchain. More precisely, a cryptocurrency is a non-traditional, digital form of currency. It’s a medium of exchange that uses cryptography to validate and secure transactions. Bitcoin, the first and most widely used cryptocurrency, and other cryptocurrencies, like Ethereum’s ether, are collectively referred to as altcoins. The space continues to grow and evolve as new players enter the market.
Year | Event |
---|---|
2009: |
The first cryptocurrency, bitcoin, is invented by the anonymous “Satoshi Nakamoto.“ |
2012: | European regulators permit bitcoin use. |
2014: | Microsoft and PayPal accept bitcoin as payment in limited uses. |
2015: | Ether, the second-largest cryptocurrency by market cap today, goes live on the Ethereum platform. |
2017: | Japan passes a law accepting bitcoin as a legal payment; CME launches bitcoin futures. |
2018: | Samsung begins manufacturing chips for mining cryptocurrencies. |
2020: | PayPal permits users to transact in bitcoin. |
2021: | El Salvador announces that businesses must accept bitcoin as legal tender. |
2022: | Ethereum’s transaction validation method shifts from “Proof-of-Work“ to “Proof-of-Stake,“ which aims to address sustainability concerns and increase transaction throughput from 15 transactions per second to thousands per second. |
2023: | In August, Grayscale won its lawsuit against the SEC, overturning the commission’s rejection to convert the Grayscale bitcoin trust (GBTC) into a spot ETF. |
2024: | US Securities and Exchange Commission approves the listing and trading of spot ETFs like the Invesco Galaxy Bitcoin ETF (BTCO) and the Invesco Galaxy Ethereum ETF (QETH). |
Source: Invesco and CoinMarketCap as of 7/23/2024
Source: Cambridge University, Crypto Climate Accord. Statista, September 2021
Many players, technologies, and financial instruments are bringing digital assets to life. Each presents an investible opportunity.
Blockchain users: Companies that research and develop blockchain technologies for cryptocurrencies and other commercial applications.
Cryptocurrency buyers: Companies that report crypto assets on their balance sheets.
Cryptocurrency miners: Companies that mine cryptocurrency assets, bringing them into existence. Miners are critical to the blockchain since their computational power keeps the network secure. After solving complex computational problems, they are rewarded in coin and permitted to update the ledger. The Proof of Stake model (ethereum’s methodology) validates block transactions based on the number of coins a miner has, whereas Proof of Work (bitcoin’s methodology) validates based on network computing power. The Proof of Stake model requires far less electricity to operate than the Proof of Work model.
Enabling technologies: Companies that facilitate the buying, selling, or transfer of crypto assets; provide custody for crypto assets; or create semiconductors or cryptocurrency mining technologies.
In addition to owning cryptocurrencies directly, many investment products and vehicles allow investors and companies to get exposure to digital assets.
Spot ETPs: Exchange-traded products that expose investors to the world’s largest cryptocurrency. ETPs are more efficient and liquid than other funds. Invesco’s unique partnership with crypto native Galaxy led to the Invesco Galaxy Bitcoin ETF (BTCO), and the Invesco Galaxy Ethereum ETF (QETH).
Cryptocurrency derivatives: Financial instruments with value based directly on the price of an underlying cryptocurrency.
Trusts and exchange-traded products (ETPs): Investment products that are linked to cryptocurrencies or funds that provide broader exposure to digital assets. Investment managers, such as Invesco, have launched exchange-traded products that invest in digital assets.
Proprietary investment products: Hedge funds and other non-exchange-traded investment vehicles that invest in cryptocurrency.
Digital assets, and cryptocurrencies in particular, involve many terms that may be new to some investors. Here are some terms to know.
Decentralized finance (DeFi): A system enabled by blockchain in which financial transactions are made directly between buyers and sellers without help from banks or other centralized financial institutions.
Exchanges: Platforms where cryptocurrencies can be bought and sold for a fee. On decentralized exchanges, users are matched with buyers/sellers using their own wallets. On centralized exchanges, users create an account with an exchange that holds their cryptocurrency assets.
Initial coin offering (ICO): A mechanism that entrepreneurs use to raise funds to launch a new cryptocurrency coin. ICOs have come under increasing regulatory scrutiny because they require no formal filings.
Token: A digital asset that represents a tradable asset on a blockchain network. Tokens, which can be used for transactions, must exist on the blockchain of another cryptocurrency (like bitcoin or ether’s Etherium blockchain).
Wallet: A device or service in which bitcoin, ether, and other cryptocurrencies are, in essence, held for use. Wallets facilitate holding cryptocurrencies, whereas an address is specific to each blockchain and used in transactions.
Seeing how the digital asset ecosystem works can help investors identify opportunities to get exposure to the asset class (see the simplified, hypothetical visual below). Miners create cryptocurrency and other digital assets, which come in various forms and types. The creation, transaction, and recording of these digital assets take place using blockchain technology. Buyers and sellers of digital assets can exchange them via blockchain technology or get exposure to them via investment funds, like hedge funds and exchange-traded products (ETPs) including the Invesco Galaxy Bitcoin ETF (BTCO) and the Invesco Galaxy Ethereum ETF (QETH). These types of investment funds either invest directly in digital assets or invest in companies and institutions that leverage blockchain technology.
Source: Invesco as of 6/30/24. For illustrative purposes only.
Digital assets are a dynamic, growing asset class that’s constantly evolving as consumers, companies, and institutions find more ways to use blockchain and cryptocurrencies. Their rapid expansion highlights the value of considering broad, diversified exposure to digital assets.
In 2024, Invesco partnered with Galaxy to launch the Invesco Galaxy Bitcoin ETF (BTCO) and Invesco Galaxy Ethereum ETF (QETH). Invesco is a global ETF franchise with a diverse selection of 200+ forward-thinking ETPs. Galaxy is a digital asset and blockchain leader with a wealth of traditional finance expertise and deep crypto know-how. The combined experience informs BTCO, which provides bitcoin exposure while helping to mitigate the risk of managing personal digital wallets and dealing with unregulated crypto platforms.
In 2021, Invesco launched two digital asset ETPs, the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BKLC). SATO and BKLC give investors efficient access to opportunities across the asset class.
Whether you’re looking for investment opportunities related to cryptocurrencies or exposure to the broader blockchain ecosystem, Invesco offers tools for diversifying your portfolio.
Want to learn more about BTCO, QETH, SATO, BKLC, and other digital asset ETFs? Read Access blockchain and cryptocurrency exposure with ETF simplicity
CoinMarketCap as of 6/30/2024.
Source: Mastercard Inc., Bloomberg L.P.; August 2, 2022
Risks
NA3721066
Invesco is not affiliated with Galaxy or Alerian.
Companies engaged in the development, enablement and acquisition of blockchain technologies are subject to a number of risks. Blockchain technology is new and many of its uses may be untested. There is no assurance that widespread adoption will occur. The extent to which companies held by the Fund utilize blockchain technology may vary.
As blockchain technology is new, there is a risk that companies developing applications of this technology may be subject to additional risks including, but not limited to, intellectual property claims and legal action. Furthermore, blockchain technology may be subject to future law and regulation that may adversely impact adoption.
Companies transacting on the blockchain are required to manage a user’s account (or “wallet”) which is accessed via cryptographic keys. Mismanagement, theft, or loss of the keys can adversely affect the companies operations on the blockchain.
Blockchain technology relies on the internet, the disruption of which may adversely affect companies involved with the technology or even the blockchain itself.
The price of a digital currency could drop precipitously (including to zero) for a variety of reasons, including, but not limited to, regulatory changes, a crisis of confidence, flaw or operational issue in a digital currency network or a change in user preference to competing cryptocurrencies.
Cryptocurrencies trade on exchanges, which are largely unregulated and, therefore, are more exposed to fraud and failure than established, regulated exchanges for securities, derivatives and other currencies.
Currently, there is relatively limited use of cryptocurrency in the retail and commercial marketplace, which contributes to price volatility.
QETH and BTCO Risks
The Fund is speculative and involves a high degree of risk. An investor may lose all or substantially all of an investment in the Fund.
The Fund is not a mutual fund or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and is not subject to regulation thereunder.
Shares in the Fund are not FDIC insured, may lose value and have no bank guarantee.
This material must be accompanied or preceded by a prospectus. Please read the prospectus carefully before investing.
BTCO Risks
See the prospectus for more information.
The Fund is not a mutual fund or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and is not subject to regulation thereunder.
Shares in the Fund are not FDIC insured, may lose value and have no bank guarantee.
This material must be accompanied or preceded by a prospectus. Please read the prospectus carefully before investing.
The Fund currently intends to effect creations and redemptions principally for cash, rather than principally in-kind because of the nature of the Fund’s investments. As such, investments in the Fund may be less tax efficient than investments in ETFs that create and redeem in-kind.
Bitcoin has historically exhibited high price volatility relative to more traditional asset classes, which may be due to speculation regarding potential future appreciation in value. The value of the Trust’s investments in bitcoin could decline rapidly, including to zero.
The further development and acceptance of the Bitcoin network, which is part of a new and rapidly changing industry, is subject to a variety of factors that are difficult to evaluate. The slowing, stopping or reversing of the development or acceptance of the network may adversely affect the price of bitcoin and therefore an investment in the Shares.
Currently, there is relatively limited use of bitcoin in the retail and commercial marketplace in comparison to relatively extensive use as a store of value, contributing to price volatility that could adversely affect an investment in the Shares.
Regulatory changes or actions may alter the nature of an investment in bitcoin or restrict the use of bitcoin or the operations of the Bitcoin network or venues on which bitcoin trades. For example, it may become difficult or illegal to acquire, hold, sell or use bitcoin in one or more countries, which could adversely impact the price of bitcoin.
The Trust’s returns will not match the performance of bitcoin because the Trust incurs the Sponsor Fee and may incur other expenses.
The Market Price of shares may reflect a discount or premium to NAV.
The price of bitcoin may be impacted by the behaviour of a small number of influential individuals or companies.
Bitcoin faces scaling obstacles that can lead to high fees or slow transaction settlement times, and attempts to increase the volume of transactions may not be effective.
Miners could act in collusion to raise transaction fees, which may affect the usage of the Bitcoin network.
Competition from central bank digital currencies (“CDBCs”) and other digital assets could adversely affect the value of bitcoin and other digital assets.
Prices of bitcoin may be affected due to stablecoins, the activities of stablecoin users and their regulatory treatment.
The open-source structure of the Bitcoin network protocol means that certain core developers and other contributors may not be directly compensated for their contributions in maintaining and developing the Bitcoin network protocol. A failure to properly monitor and upgrade the Bitcoin network protocol could damage the network.
Lack of clarity in the corporate governance of bitcoin may lead to ineffective decision-making that slow development or prevents the Bitcoin network from overcoming important obstacles.
If the award of new bitcoin for solving blocks and transaction fees for recording transactions are not sufficiently high to incentivize miners, miners may reduce or cease processing power to solve blocks which could lead to confirmations on the Bitcoin blockchain being temporarily slowed. Significant delays in transaction confirmations could result in a loss of confidence in the Bitcoin network, which could adversely affect an investment in the Shares.
A temporary or permanent “fork” in the blockchain network could adversely affect an investment in the Shares.
Flaws in the source code of Bitcoin, or flaws in the underlying cryptography, could leave the Bitcoin network vulnerable to a multitude of attack vectors.
A disruption of the internet may affect the use of bitcoin and subsequently the value of the Shares.
Risks of over or under regulation in the digital asset ecosystem could stifle innovation, which could adversely impact the value of the Shares.
Shareholders do not have the protections associated with ownership of Shares in an investment company registered under the Investment Company Act of 1940 (the “1940 Act”) or the protections afforded by the Commodity Exchange Act (the “CEA”).
Future regulations may require the Trust and the Sponsor to become registered, which may cause the Trust to liquidate.
The tax treatment of bitcoin and other digital assets is uncertain and may be adverse, which could adversely affect the value of an investment in the Shares.
Intellectual property rights claims may adversely affect the operation of the Bitcoin network.
The venues through which bitcoin trades are relatively new and may be more exposed to operations problems or failure than trading venues for other assets.
Ownership of bitcoin is pseudonymous, and the supply of accessible bitcoin is unknown. Entities with substantial holdings in bitcoin may engage in large-scale sales or distributions, either on nonmarket terms or in the ordinary course, which could result in a reduction in in the price of bitcoin.
The Trust is subject to the risks due to its concentration in a single asset.
Bitcoin spot trading venues are not subject to the same regulatory oversight as traditional equity exchanges.
Bitcoin transactions are irrevocable and stolen or incorrectly transferred bitcoin may be irretrievable. As a result, any incorrectly executed bitcoin transactions could adversely affect an investment in the Trust.
QETH Risks
The Fund is not a mutual fund or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and is not subject to regulation thereunder.
Shares in the Fund are not FDIC insured, may lose value and have no bank guarantee.
This material must be accompanied or preceded by a prospectus. Please read the prospectus carefully before investing.
The Fund currently intends to effect creations and redemptions principally for cash, rather than principally in-kind because of the nature of the Fund's investments. As such, investments in the Fund may be less tax efficient than investments in ETFs that create and redeem in-kind.
The Trust will not participate in the proof-of-stake validation mechanism of the Ethereum network (i.e., the Trust will not “stake” its ether) to earn additional ether or seek other means of generating income from its ether holdings.
Ether has historically exhibited high price volatility relative to more traditional asset classes, which may be due to speculation regarding potential future appreciation in value. The value of the Trust’s investments in bitcoin could decline rapidly, including to zero.
The further development and acceptance of the Ethereum network, which is part of a new and rapidly changing industry, is subject to a variety of factors that are difficult to evaluate. The slowing, stopping or reversing of the development or acceptance of the network may adversely affect the price of ether and therefore an investment in the Shares.
Currently, there is relatively limited use of ether in the retail and commercial marketplace in comparison to relatively extensive use as a store of value, contributing to price volatility that could adversely affect an investment in the Shares.
Regulatory changes or actions may alter the nature of an investment in bitcoin or restrict the use of ether or the operations of the Ethereum network or venues on which bitcoin trades. For example, it may become difficult or illegal to acquire, hold, sell or use ether in one or more countries, which could adversely impact the price of ether.
In the past, flaws in the source code for ether have been discovered, including those that resulted in the theft of users’ ether. Several errors and defects have been publicly found and corrected, including those that disabled some functionality for users and exposed users’ personal information. Discovery of flaws in or exploitations of the source code that allow malicious actors to take or create money in contravention of known network rules has occurred.
The Trust’s returns will not match the performance of ether because the Trust incurs the Sponsor Fee and may incur other expenses.
The Market Price of shares may reflect a discount or premium to NAV.
The price of ether may be impacted by the behavior of a small number of influential individuals or companies.
The Ethereum network and ether face scaling obstacles that can lead to high fees or slow transaction settlement times and attempts to increase the volume of transactions may not be effective.
Competition from central bank digital currencies (“CDBCs”) and other digital assets could adversely affect the value of ether and other digital assets.
Prices of ether may be affected due to stablecoins, the activities of stablecoin users and their regulatory treatment.
A temporary or permanent “fork” in the Ethereum network could adversely affect an investment in the Shares.
A disruption of the internet may affect the use of Ethereum and subsequently the value of the Shares.
Future regulations may require the Trust and the Sponsor to become registered, which may cause the Trust to liquidate.
The tax treatment of ether and other digital assets is uncertain and may be adverse, which could adversely affect the value of an investment in the Shares.
The venues through which ether trades are relatively new and may be more exposed to operations problems or failure than trading venues for other assets.
The Trust is subject to the risks due to its concentration in a single asset.
Ether spot trading venues are not subject to the same regulatory oversight as traditional equity exchanges.
Ethereum transactions are irrevocable and stolen or incorrectly transferred bitcoin may be irretrievable. As a result, any incorrectly executed bitcoin transactions could adversely affect an investment in the Trust.
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