How to Invest in Cryptocurrency Mutual Funds

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Pros and cons of cryptocurrency mutual funds

Here are the biggest advantages crypto mutual funds offer:

Easy to buy: You can buy mutual funds with a brokerage account, so, like cryptocurrency stocks, they're a convenient way to invest in crypto. To buy most cryptocurrencies, you need an account on a crypto exchange.
Portfolio diversity: Mutual funds are a good way to reduce risk because they invest in a variety of assets. You can't really diversify much with crypto mutual funds yet, given the limited options, but that should change if more funds are approved.
Quickly rising prices: The crypto market is known for large price movements. A crypto mutual fund could be one of your most profitable investments.
Tax-advantaged retirement accounts for investing: You can't buy Bitcoin directly with a retirement plan such as an IRA or a 401(k), but you could invest in a Bitcoin mutual fund.

Now, let's look at some of the downsides:

Limited availability: With so few options, you might be out of luck finding one that appeals to you.
Extreme volatility: While you could make a lot of money from crypto, prices could also plummet. Investors normally buy mutual funds to reduce risk through diversification, but you're still taking on significant risk with a crypto mutual fund.
No crypto ownership: Since it invests in futures contracts, a crypto mutual fund's price may not entirely follow the price of its cryptocurrencies.
High expense ratios: Bitcoin Strategy ProFund charges an expense ratio of 1.16%. Anything above 1% is considered high.

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How to invest in cryptocurrency mutual funds

If you're strictly looking for a cryptocurrency mutual fund, the closest option is Bitcoin Strategy ProFund. It invests in Bitcoin futures, not in Bitcoin itself. You can buy it through a brokerage account.

You may also want to consider similar alternatives to crypto mutual funds. Here are a few of the closest investment types.

Cryptocurrency trusts

An investment trust is a company that's set up as an investment fund. It offers a fixed number of shares, whether privately or publicly, for investors to purchase. It pools that money and invests it.

Cryptocurrency trusts are investment trusts that focus on cryptocurrencies. They're similar to mutual funds in that they allow investors to take a more hands-off approach.

Grayscale is one of the largest companies offering cryptocurrency trusts. These include:

Grayscale Bitcoin Trust (GBTC +0.68%): Tracks the performance of Bitcoin.
Grayscale Ethereum Trust (ETHE +0.46%): Tracks the performance of Ethereum (ETH +0.71%).
Grayscale Digital Large Cap Fund (OTC:GDLC): Tracks the performance of several of the largest cryptocurrencies by market cap.

Make sure to check out the fees before investing in a cryptocurrency trust. For example, the Grayscale trusts charge annual fees of 2% to 2.5%, so you're paying quite a bit for the convenience they offer.

Cryptocurrency ETFs

Cryptocurrency ETFs are another type of managed fund that invests in cryptocurrency. They invest in crypto futures contracts and attempt to track the price of one or more digital assets. Here are a couple of the most well-known crypto ETFs:

ProShares Bitcoin ETF (BITO +0.64%) was the first cryptocurrency ETF approved by the SEC. It aims to track Bitcoin using Bitcoin futures contracts and has an expense ratio of 0.95%.
CoinShares Bitcoin and Ether ETF (BTF -0.79%) is a smaller Bitcoin ETF that also invests in Bitcoin futures contracts. It has an expense ratio of 1.27%.

Crypto-adjacent funds

If you're open to a more indirect method of crypto investing, you could look into what are called crypto-adjacent funds. These are mutual funds and ETFs that invest in companies that work with cryptocurrency in some capacity. It's not the same as investing directly in crypto, but it gives you some exposure to that market.

A few to consider:

Amplify Blockchain Technology ETF (BLOK +1.36%) invests in businesses that use blockchain technology to power cryptocurrencies. It has an expense ratio of 0.70%.
Siren NexGen Economy ETF (NASDAQ:BLCN) aims to invest in companies that develop, research, or utilize blockchain technology. It has an expense ratio of 0.68%.

Cryptocurrency mutual funds are an intriguing possibility for the future, but they're still a work in progress. Between the crypto mutual funds and ETFs on the market right now, most only attempt to track Bitcoin, so you don't get a diverse mix of assets. If the SEC relaxes its stance on cryptocurrencies, it will likely lead to far more crypto funds and give investors more options to consider.

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