Crypto ETFs: The Complete Guide to On-Chain Investing

What Are ETFs?

Exchange-Traded Funds (ETFs) revolutionized traditional investing by making diversification simple and affordable. Instead of buying hundreds of individual stocks to match the S&P 500, investors can buy a single fund that holds all those companies automatically.

ETFs track a market benchmark—like the S&P 500, Nasdaq-100, or any sector—by holding the same assets in the same proportions. This passive investment strategy has proven remarkably effective:

• Simplicity: One purchase gets you instant diversification
• Consistent performance: Most active managers fail to beat ETFs over time
• Tax efficiency: Less trading means fewer taxable events
• Liquidity: Trade anytime during market hours like a stock

The Rise of Crypto ETFs

In 2024, the cryptocurrency market reached a major milestone with the approval of Bitcoin and Ethereum spot ETFs in the United States. This regulatory green light opened crypto investing to millions of traditional investors who wanted exposure without the complexity of self-custody.

How Crypto ETFs Work

Crypto ETFs function like traditional ETFs but track digital assets instead of stocks or bonds:

• Spot crypto ETFs hold actual cryptocurrencies (like Bitcoin or Ethereum)
• Futures-based ETFs use derivative contracts to track crypto prices
• Multi-asset crypto ETFs hold baskets of different cryptocurrencies

Popular crypto ETFs include:

• Single-asset funds (IBIT for Bitcoin, FETH for Ethereum)
• Diversified crypto funds (GDLC holds Bitcoin, Ethereum, XRP, Solana, and Cardano)
• Leveraged and inverse funds for active traders

Why Crypto ETFs Became Popular

Crypto ETFs solved several key problems for traditional investors:

1. Accessibility: Buy crypto through your existing brokerage account
2. Security: Professional custodians handle storage and security
3. Familiarity: Works like any other ETF you already own
4. Regulatory comfort: SEC-approved investment vehicles
5. Tax simplicity: Standard 1099 forms instead of complex crypto tax reporting

The Limitations of Traditional Crypto ETFs

Despite their popularity, traditional crypto ETFs come with significant drawbacks that limit their potential:

Centralization Risk

Traditional ETFs require trusting centralized institutions:

• Custody risk: Your crypto is held by third-party custodians
• Counterparty risk: The fund manager could face regulatory or operational issues
• Limited transparency: Holdings are disclosed periodically, not in real-time

High Fees Eating Returns

ETF expense ratios might seem small, but they compound significantly:

• Average crypto ETF fees: 0.20% - 0.95% annually
• A 0.50% annual fee may seem small, but compounds significantly over time
• Management fees, custody fees, and trading costs all add up

Trading Restrictions

Traditional ETFs operate within market hours:

• Trade only when stock exchanges are open (9:30 AM - 4:00 PM ET, Monday-Friday)
• Miss crypto market movements on weekends and holidays
• Can't respond to 24/7 crypto volatility

No Direct Ownership

With traditional crypto ETFs, you don't actually own the underlying cryptocurrency:

• Can't transfer your crypto to a wallet
• Can't use your holdings in DeFi protocols
• Limited to price exposure only

On-Chain ETFs: The Next Evolution

On-chain crypto ETFs combine the best features of traditional ETFs with the power of blockchain technology. These decentralized products offer everything traditional ETFs provide—plus crucial advantages that only blockchain makes possible.

What Makes On-Chain ETFs Different

On-chain ETFs are smart contract-based portfolios that:

1. Execute entirely on blockchain - No intermediaries or custodians
2. Provide true ownership - You hold the actual ETF token
3. Trade 24/7 - No market hours, no weekends off
4. Offer complete transparency - View holdings in real-time on-chain
5. Eliminate custody risk - Non-custodial, trustless architecture

Key Advantages Over Traditional Crypto ETFs

True Decentralization

• Smart contracts manage the portfolio automatically
• No single point of failure or trust required
• Fully auditable on blockchain

24/7 Liquidity

• Trade anytime, anywhere
• Respond to market movements instantly
• No waiting for market open

Direct Ownership

• You hold the ETF token in your wallet
• Can use in DeFi protocols
• Full control over your assets

Automated Rebalancing

• Smart contracts execute rebalancing automatically
• No human emotion or timing errors
• Captures volatility through disciplined buy-low, sell-high execution

Introducing Bundles: On-Chain ETFs for Everything

Bundles is the first protocol for creating and investing in fully on-chain automated ETFs. Think of it as the infrastructure layer for decentralized index funds—where anyone can create an ETF for any tokenized asset, and anyone can invest with a single transaction.

Beyond Crypto: ETFs for Every Asset Class

While Bundles started with crypto-native indexes, the protocol supports any ERC-20 token—which means any tokenized asset. This opens up possibilities that traditional ETFs can't match:

Tokenized Real World Assets (RWAs)

• Equities & ETFs: Tokenized company shares and market indices (e.g., Tesla, Apple, S&P 500 tokens)
• Real Estate: Fractionalized property exposure through tokenized real estate
• Private Markets: Access to pre-IPO companies and venture investments

Commodities & Precious Metals

• Gold & Silver: Tokenized precious metals (PAXG, XAUT)
• Energy: Oil, gas, electricity as tokenized instruments
• Agricultural: Wheat, corn, soy, and other commodity exposure

Custom Strategies

• Geographic indexes: European tech, Asian markets, emerging economies
• Sector-specific: AI companies, renewable energy, biotech
• Thematic: ESG-focused, dividend-paying, growth stocks

With Bundles, you can create a globally diversified portfolio combining crypto, stocks, real estate, and commodities—all in one on-chain token, all self-rebalancing, all available 24/7.

Create or Invest in Any ETF

Bundles is permissionless—anyone can create an ETF for any strategy:

For Creators:

• Design custom asset allocation strategies
• Set your own rebalancing thresholds
• Earn fees from investor activity
• Build your brand as a curator

For Investors:

• Browse existing ETFs across all asset classes
• Invest with a single transaction
• Let automation handle the rebalancing

Whether you want to invest in an existing strategy or launch your own ETF, Bundles provides the infrastructure.

How Bundles Works

Bundles are fully on-chain ETFs that hold multiple assets with target weights. Instead of manual rebalancing or fixed schedules, Bundles uses a threshold system:

1. Set target weights: Each asset has a target percentage (e.g., 40% BTC, 40% ETH, 15% USDC, 5% BUN)
2. Define thresholds: Assets can drift within a range before rebalancing triggers
3. Automatic execution: When an asset moves beyond its threshold, the ETF rebalances automatically

The Performance Advantage: Threshold Rebalancing

Traditional ETFs rebalance on fixed schedules (monthly, quarterly). Bundles rebalances based on market movements:

When assets outperform:

• Price increases push the asset above its target weight
• ETF automatically sells the outperformer
• Takes profits at market highs

When assets underperform:

• Price decreases push the asset below its target weight
• ETF automatically buys more
• Accumulates at market lows

This systematic "buy low, sell high" approach captures value from volatility that buy-and-hold strategies miss—all executed automatically by smart contracts.

Real Example: $CORE bundle

The $CORE bundle demonstrates this strategy with crypto's foundation assets:

• 40% Bitcoin (BTC) - Digital gold and store of value
• 40% Ethereum (ETH) - Smart contract platform
• 15% USDC - Stablecoin for stability
• 5% BUN - Protocol token for rebalancing fees

With a 5% threshold, when BTC surges and reaches 45% of the portfolio, the ETF automatically sells the excess and rebalances into underweight assets. When volatility reverses, it's already positioned to capture the next move.

Comparing the Options

The Future of Crypto ETFs

The evolution from traditional ETFs to on-chain ETFs represents more than just a technological upgrade—it's a fundamental shift in how we think about diversified investing.

Traditional ETFs brought passive investing to stocks and bonds, making diversification accessible to everyone. They lowered costs and simplified investing, but remained tied to centralized infrastructure and market hours.

Crypto ETFs extended this model to digital assets, offering regulated exposure through familiar channels. But they inherited the limitations of traditional finance: centralization, custody risk, market hours, and high fees.

On-chain ETFs complete the vision: truly decentralized, fully transparent, 24/7 accessible portfolios that give investors direct ownership while capturing the benefits of automated, intelligent rebalancing.

As the crypto market matures and more assets become tokenized (real estate, commodities, equities), on-chain ETFs will expand beyond native crypto to create globally diversified portfolios—accessible to anyone, anywhere, at any time.

Getting Started with On-Chain ETFs

If you're ready to move beyond traditional crypto ETFs and explore on-chain alternatives:

1. Set up a Web3 wallet: MetaMask, Rabby, or similar
2. Fund with ETH: To buy your first ETF on bundles.fi
3. Buy in one transaction: Swap ETH directly for your chosen ETF token
4. Hold long-term: Let automated rebalancing work for you

No brokerage account. No custody agreements. No trading restrictions.

Just you, your wallet, and a diversified crypto portfolio working 24/7 to capture market opportunities.

Ready to experience the future of ETF investing?

Explore Bundles - the first threshold-based on-chain ETF protocol, or learn more in our documentation.