What exactly are crypto ETNs?

Crypto ETN, short for Cryptocurrency Exchange-Traded Note, is a financial instrument that tracks the price of a specific cryptocurrency or a basket of cryptocurrencies, much like its cousins, ETFs (Exchange-Traded Funds). An ETN is an unsecured debt note issued by a financial institution. This means you are not directly owning a piece of the cryptocurrency itself but rather a promise from the bank. The bank guarantees to pay you the performance of the crypto (minus fees) when the ETN matures.

What are the disadvantages of ETNs?

Crypto ETNs are ideal for cautious investors looking to diversify their portfolios with crypto exposure. However, there are a few key risks to consider. Unlike owning the actual cryptocurrency, ETNs are unsecured debts that financial institutions issue. This means there's a chance, even with reputable issuers, that they could default, and you could lose your entire investment. Additionally, ETNs don't grant ownership of the underlying asset, so your return depends solely on the issuer's ability to pay. Finally, low trading volumes for some ETNs could make it difficult to sell them quickly when you need to.

How can one invest in crypto ETNs?

Generally, the difference between what you pay when you buy the ETN and what you get when you sell it is considered a capital gain or loss. This means you only pay taxes when you sell the ETN (or when it reaches its maturity date). Keep in mind that each situation varies based on your location. Therefore, consulting with a tax professional is always the most reliable approach.