While it was considered a niche or fad asset class, cryptocurrencies such as Bitcoin, Ether, and others have now gained some serious legitimacy. As investors seek to find true sources of diversification in their portfolios, cryptocurrency has been tapped by a wide range of investors, including institutions and endowments. Leading that adoption has been various ETFS that track or hold cryptocurrencies tied to both spot and futures pricing.
And now those ETFs are becoming more active in their approach.
Like many parts of the market, the active ETF boom has come to the cryptocurrency space. Several funds have already launched, and more active ETFs are in the works to bring active crypto strategies to the masses. Given the volatility of bitcoin and other digital currencies, this could be the best bet for portfolios.
ETFs Were A Crypto Game Changer
The growth of Bitcoin and other digital assets has been breathtaking over the last five years. These digital dollars were once seen as the “wild west” of investing and were a niche idea. Volatility for the asset class was extremely high, and many digital currencies routinely experienced significant price swings, fluctuating up and down.
However, that niche idea has quickly gone mainstream.
Today, many institutional and retail investors have included crypto in their portfolios, while many financial advisors have opined about the benefits of diversification and low correlations of the asset class. The key to that adoption from a wide range of investors could be the creation and growth of ETFs in the sector.
After BlackRock gained SEC approval for its iShares Bitcoin Trust ETF (IBIT), it was off to the races. Shortly after, numerous fund managers, including Invesco, Fidelity, and Van Eck, launched their own bitcoin and digital currency ETFs designed to track spot prices. Assets for many of these products quickly surged. For example, IBIT was one of the fastest-growing ETFs, reaching over $80 billion in assets in a single year.
It’s easy to see why investors have become enthusiastic about bitcoin and cryptocurrency ETFs. The ETF structure removes many of the headaches with owning digital assets, such as tax reporting and custody. Moreover, many institutional investors and endowments have rules governing what they can own; ETFs make it easier to circumvent some of these regulations. By choosing an ETF over investing directly, many investors can simplify their crypto experience.
And with that, crypto was able to go from a specialty asset class to a significant part of portfolio allocations.
The Next Growth Is Active
However, like many asset classes and sectors, active management may offer an improvement over the passive nature of many crypto ETFs and digital currencies.
The primary appeal of Bitcoin and other cryptocurrencies has largely been their potential to generate significant alpha for a portfolio. But there is no such thing as a free lunch. Those massive returns have come with extraordinary volatility, over four times that of the S&P 500. Putting that into context, Bitcoin’s five biggest drawdown periods saw the asset class sink anywhere from 31% to 83%.
This chart from crypto-focused asset manager, XBTO, highlights Bitcoin’s and Ether’s volatility over the last five years.
Source: XBTO
And while the asset class’s volatility has started to temper as institutional investors have entered the market, it remains a very volatile asset class. It’s here that active managers may have the skill to generate additional returns. For active stock pickers, volatility has been a factor that has led to outperformance. The same can be said for crypto.
The win is that crypto offers additional unique benefits that allow for active potential to generate extra returns.
For starters, crypto is a global 24/7 trading exchange, unlike the stock or bond market. This enables active managers to consistently express their market views and hedge against major macroeconomic events when other markets are closed.
Additionally, there are arbitrage opportunities. For example, active managers can exploit the so-called “Kimchi premium.” Cryptocurrency prices on South Korean exchanges may sometimes be significantly higher than on global exchanges due to the country’s decentralized structure and stricter exchange rules. All in all, there are more than 200 centralized and 500 decentralized exchanges that can be used to arbitrage cryptocurrencies.
Finally, active managers can use a combination of spot currency and futures pricing to bet on the direction of various digital assets. This can generate additional alpha as well as limit drawdown potential. Likewise, they could bet on multiple blockchain, miner, and digital custodian equities to produce gains.
The proof is in the pudding. Three of the top five best-performing crypto ETFs from last year employed an active management style.
More Active Crypto ETFs are Coming
Given the potential for active to outperform passive in the digital assets space, many managers are now looking towards going active with their crypto ETFs. There are now 92 different crypto fund applications registered with the SEC. This includes a hefty slog of active funds from such issuers as Cathie Wood’s ARK and 21Shares. Many of the registered funds will utilize a combination of mandates, enabling complete active management across the cryptocurrency ecosystem. 1
For investors, this is huge news.
Ultimately, adding active management to the digital assets space could help them generate better long-term returns with reduced volatility. And do so, at a significantly lower cost. That’s a win-win for portfolios.
Digital Asset ETFs
These ETFs were selected based on their exposure to spot Bitcoin. They have AUM between $730M and $87B. They are sorted by their 1-year total return, which ranges from 88% to 93%. They have expense ratios ranging from 0.19% to 1.50% and currently do not pay any dividends.
| Ticker | Name | AUM | 1-year Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| BITO | ProShares Bitcoin Strategy ETF | $2.76B | 92.7% | 0% | 0.95% | ETF | No |
| IBIT | iShares Bitcoin Trust | $86.7B | 90.9% | 0% | 0.25% | ETF | No |
| HODL | VanEck Bitcoin Trust | $1.3B | 90.9% | 0% | 0.25% | ETF | No |
| FBTC | Fidelity® Wise Origin® Bitcoin Fund | $19.2B | 90.7% | 0% | 0.25% | ETF | No |
| ARKB | ARK 21Shares Bitcoin ETF | $4.75B | 90.7% | 0% | 0.21% | ETF | No |
| EZBC | Franklin Templeton Digital Holdings Trust | $732M | 90.7% | 0% | 0.19% | ETF | No |
| BTCO | Invesco Galaxy Bitcoin ETF | $856M | 90.5% | 0% | 0.39% | ETF | No |
| GBTC | Grayscale Bitcoin Trust | $21B | 88.4% | 0% | 1.50% | ETF | No |
All in all, bitcoin and crypto ETFs have been a game-changer, leading to mainstream adoption. And now, active ETFs could change the game again. Offering managers the ability to leverage some of the digital asset classes’ unique characteristics, active ETFs could enhance returns and mitigate some of the volatility associated with the asset class. That’s a massive win for portfolios and investors.
Bottom Line
ETFs in the digital asset space have allowed a variety of investors to easily and cheaply add the asset class. Now, active ETFs are enhancing returns. For investors, as the active space grows in the crypto world, better returns are on the horizon.
1 Citywire (July 2025). Cathie Wood’s ARK plots crypto-focused active ETF
