Crypto ETFs are shifting from fringe alternatives to mainstream tools for expressing growth and innovation themes, placing them alongside technology and other high‑beta sectors, according to Roxanna Islam, Head of Sector and Industry Research at VettaFi.
“Many investors are treating crypto like a sector allocation to express growth and innovation as a theme, rather than as an alternative investment,” Islam said in an interview with Benzinga, adding that crypto’s distinct volatility profile still keeps it “in a category of its own” for many portfolios.
Within the thematic landscape, spot crypto ETFs currently align most closely with high-beta growth strategies, while crypto equity ETF, holding miners and blockchain-related stocks, overlap more meaningfully with AI and fintech themes. “Crypto equity ETFs which hold crypto miners and blockchain themes have a stronger overlap with AI and fintech themes,” Islam said.
Flows Move Like Tech On Steroids
That positioning shows up clearly in flow behavior. Crypto ETF flows tend to move directionally with other risk-on sectors such as semiconductors and artificial intelligence, seeing stronger inflows during bullish phases and softer demand during risk-off periods. However, Islam noted that crypto ETFs can display sharper swings than equities, with flows also reacting quickly to macro developments and headline risk.
As enthusiasm builds during market rallies, crypto ETFs can vie for investor capital directly with tech funds. “Crypto ETFs can compete with thematic tech for the same risk-on dollars,” Islam said, though she cautioned that crypto’s higher volatility makes it an imperfect substitute for equity-based strategies.
Traders Flip Fast, Allocators Stay Put
Flow data suggests investor intent is split between short-term positioning and longer-term allocation. “It can be very tactical and follow the news and prices,” Islam said, “but a strong asset base even during drawdowns points to a steadily expanding longer-term allocation.”
Differences are also emerging within crypto ETF segments. Bitcoin ETFs are increasingly viewed as core, long-term holdings, while Ethereum-focused products behave more like technology exposures. “Ethereum ETFs can trade more like tech stocks and can play a relatively more tactical role in a diversified crypto portfolio,” Islam said.
ETF Wrapper Turns Crypto Into Easy Mode
The ETF wrapper itself has helped broaden adoption by reducing friction. While it doesn’t change crypto’s inherent volatility, Islam said it simplifies access and improves investor comfort by offering exposure “with the same ease of access as other strategies.”
Looking ahead, crypto ETFs are likely to act as a liquidity source during periods of market stress. “Crypto ETFs are more likely to be a primary source of liquidity, especially for on-the-fence investors,” Islam said, though she added that longer-term holders often step in to add exposure during sharp pullbacks.
Image: Shutterstock
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