Key Takeaways
- Individual investors can now buy and trade spot ETFs alongside other securities in their brokerage account.
- Ether and bitcoin are, on average, six and eight times more volatile than a 60/40 portfolio, according to a Morningstar analysis.
- Allocating 5% or more of your portfolio to crypto can make it significantly more volatile.
You can now invest in ether (ETH), the native token of the Ethereum blockchain, by putting money into one of the nine spot ether exchange traded funds that began trading Tuesday. But should you?
These ETFs have made getting a slice of the second-largest cryptocurrency by market capitalization easier via a brokerage account, just like you would do for other stocks and ETFs.
“Most investors are accustomed to holding securities in their brokerage accounts, and they’re unfamiliar with holding digital assets in digital wallets. By having a Bitcoin or Ethereum ETF, they can invest in these assets in a more familiar way,” said Douglas Boneparth, CFP and founder of Bone Fide Wealth.
Fidelity and Charles Schwab are among brokers that offer these products, and investors should check with their brokers to see if they have the option.
Despite attracting more than $100 million in inflows on their first day, ether ETFs have not really captured investor interest just yet. That’s in stark contrast to massive inflows seen by spot Bitcoin ETFs that began trading in January.
When Investing In Crypto ETFs, Prepare For Volatility
If you’re considering investing in crypto, be prepared for a rollercoaster ride, experts say.
“These are funds that don’t have significant track records. There’s a lot of volatility, and people really need to get used to what these types of funds are doing in the marketplace,” said Megan Gorman, a managing partner at Chequers Financial Management.
Although cryptocurrencies such as bitcoin (BTC) and ether have the potential to offer greater returns than a conventional 60/40 equity and fixed-income portfolio, it also comes with much greater risks.
“These are cryptocurrencies that have had incredible returns over their respective lives, and that’s also come with a lot of volatility,” says Stephen Margaria, a manager research analyst at Morningstar. “In the five year period that we looked, Ether and Bitcoin were, on average, eight [and] six times more volatile.”
Even allocating a small percentage of your portfolio towards crypto can significantly increase volatility. An analysis done by Morningstar found that if an investor allocated just 5% or more of their portfolio to ether, bitcoin, or a combination of both, it would increase volatility by more than 10% over a 60/40 portfolio. Investing in only ether, could make your portfolio more volatile.
“If investors want to further diversify their portfolio into crypto, at 1% or 2%, you’re not looking at much of a change in the portfolio’s risk profile, but it’s really at 5% or over that investors should be aware of how that [risk] changes,” says Margaria.