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Cryptocurrency at Wealthfront

We offer long-term exposure to Bitcoin and Ethereum through the Grayscale Bitcoin Trust ETF (GBTC) and the Grayscale Ethereum Trust (ETHE), respectively.

Cryptocurrency

Symbol

Bitcoin

GBTC

Ethereum

ETHE

Both of these investments are trusts but work similarly to our ETF offerings. As of January 11, 2024 GBTC is offered as an ETF on the NYSE. ETHE works similarly to our ETF offerings but is not traded on an exchange as an ETF. You can add either of these to your portfolio in your Automated Investing Account, and we’ll transition you in and out of these investments tax-efficiently.

Important things to note:

  • We don’t offer individual coins or wallets
  • Cryptocurrency investments carry significant risk! We limit your cryptocurrency allocation to no more than 10% of your portfolio value
  • Cryptocurrency ETFs and trusts aren’t eligible for Tax-Loss Harvesting
  • Cryptocurrency ETFs and trusts can’t be used as collateral for PLOC

What are cryptocurrency ETFs and trusts

We offer exposure to cryptocurrencies through shares of Grayscale’s GBTC ETF and the ETHE trust. These trusts allow you to invest in a bundle of cryptocurrency coins, similar to how ETFs and other funds hold certain allocations of stocks, bonds, and/or other assets. Both the GBTC ETF and ETHE are trusts but GBTC is an ETF and traded on the NYSE Arca while ETHE is not an ETF and is not traded on a stock exchange.

How do the trusts work?

Grayscale has formed various cryptocurrency trusts, including GBTC and ETHE. These trusts contain a bundle of coins, which Grayscale keeps in offline, “cold” storage. Each trust’s coins are stored separately (not commingled across the funds or with other assets) and are not lent out. When you buy a share of a trust, you own a portion of the trust, which provides indirect exposure to cryptocurrency. 

Risks to be aware of before investing:

  • ETHE has not been converted to an ETF and does not have the same creation and redemption mechanism that an ETF has. This means that the share price of a trust may vary from the value of its underlying assets (the cryptocurrencies)
  • Cryptocurrency may be more volatile than other investments and can be influenced by unpredictable external events that affect confidence in the crypto ecosystem
  • Cryptocurrency is at additional risk of electronic attacks

FAQs

Can I own cryptocurrency directly through Wealthfront?

No. At this time, we only offer exposure to cryptocurrency through trusts. You can’t own individual coins or add coins to a crypto wallet. We offer cryptocurrency as a diversification asset within a long-term investment strategy, not as a short-term investment or form of payment.

Why can’t cryptocurrency exceed 10% of my total portfolio value?

To help clients avoid creating an overly risky portfolio, you can’t set your cryptocurrency allocation, in the form of cryptocurrency trusts  ETHE), and ETFs (GBTC) to more than 10% of your portfolio’s total value. We consider cryptocurrencies, such as Bitcoin and Ethereum, and cryptocurrency trusts risky for a few reasons:

Cryptocurrency is significantly more volatile than most securities-based ETFs

Over the five-year period ending on October 31, 2022, SPY (the SPDR S&P 500 ETF Trust), a common measure of general market performance, experienced a realized volatility of 21.2%.1 Over the same time period, Bitcoin experienced a volatility of 77.9%, almost four times as volatile.2 High volatility may come with bigger upside, but also is more likely to create larger dips in value as well.

Cryptocurrency trusts have added risk from supply and demand in the marketplace

Unlike ETFs, trusts don’t have an efficient creation and redemption mechanism — the process that usually keeps the price of an ETF close to the value of its holdings. This means that the price of a cryptocurrency trust’s shares can differ significantly from the value of the underlying assets, especially when compared to ETFs. 

As of January 11, 2024 GBTC has been converted to an ETF and is trading on the NYSE. This conversion enables GBTC to more closely track the underlying asset, Bitcoin, and reduce the risk of a price discrepancy between the fund and the price of Bitcoin at a given time.

Cryptocurrencies and cryptocurrency trusts are more susceptible to electronic attacks

Since cryptocurrency assets can be stored online, they can be “hacked” more easily than an ETF that holds stocks or bonds. However, 100% of Grayscale’s cryptocurrency assets are stored offline (“held in cold storage”), greatly reducing the risk of theft.

How are the coins inside the cryptocurrency trusts protected?

All of the cryptocurrency trusts we currently offer are provided by Grayscale. 100% of the coins in these trusts are held in cold storage (offline), which is considered one of the most secure ways to store cryptocurrency. Grayscale does not lend the underlying coins out. Additionally, these assets are covered by insurance in the case of theft.

What accounts can I invest in cryptocurrency? 

The cryptocurrency trusts are available to clients who have an Automated Investing Account. This includes both taxable and tax advantages accounts like IRAs.

 


1. CRSP, Center for Research in Securities Prices, LLC, http://www.crsp.org/

2. FRED, Economic Research Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/CBBTCUSD

 

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