Bitcoin E.T.F.s Come With Risks. Here’s What You Should Know.

Nearly a dozen new investments funds that hold Bitcoin began trading last week, making it easier for anyone with a basic brokerage account to buy a slice of the digital currency.

Several established financial institutions, including Fidelity and BlackRock, have coalesced around Bitcoin because it is the world’s first and largest cryptocurrency.

But Bitcoin remains an enigma to most everyday investors, and it’s hard to separate the buzz from any true potential. It’s also wildly volatile.

In other words, it’s a bet. And institutions are wagering that plenty of investors want in.

But putting crypto into a traditional investment wrapper does not paper over the underlying risks. Here’s a look at how it works:

What is an exchange-traded fund?

Exchange-traded funds are similar to mutual funds, but they can be traded on an exchange like a stock. E.T.F.s track the performance of the assets they hold, which might include a diversified basket of securities like stock or bonds, or even single commodities, like gold, silver and crypto.

They were initially designed to track indexes (like the S&P 500) or spheres of the market, and were heralded for their low costs and tax efficiency. But they’ve grown in popularity in recent years. Many E.T.F.s now track narrower and more esoteric slices of the markets, while others use leverage to magnify bets on a specific stock or sector or the market overall.

What is a Bitcoin E.T.F.?

The Bitcoin exchange-traded products that recently started trading are designed to track Bitcoin’s price, minus the fees and cost of trading. This throws open the gates to any investors with a traditional brokerage account who can now buy the shares as if they were buying stock in Apple or Google.