The rollout of cryptocurrency exchange-traded products (ETPs) during the past few years has given investors a relatively convenient way to add digital asset exposure to their portfolios. Crypto ETPs can be bought and sold in traditional brokerage accounts—no need to visit a crypto exchange or hold assets in a digital wallet—potentially making cryptocurrency more accessible and better integrated with familiar investment platforms.

Bear in mind that underlying cryptocurrencies are relatively new and may be subject to illiquidity and increased risk of loss. Additionally, crypto currencies are generally not considered to be securities and are typically not registered under federal securities laws. As a result, disclosures that are typically available for securities, things like information about the issuer, conflicts of interest, standards of conduct, and capital requirements, may not be available. Finally, theft, scams and frauds have plagued the crypto industry. Since cryptocurrencies tend to be bearer instruments (like cash), there may not be an effective way to recover stolen assets.

For those who are interested in investing, there are many types of crypto ETPs to choose from, with underlying assets that range from spot cryptocurrency to crypto-related securities like futures contracts, convertible bonds and crypto-related stocks. It's a complex area, and each investment has benefits and risks—not to mention the well-known volatility of cryptocurrency itself. Investors should remember that cryptocurrencies are speculative investments, with significant volatility in cryptocurrency prices and in the prices of indirect investments that have exposure to the cryptocurrency market. Keep in mind: Never invest more than you can afford to lose. Investing in cryptocurrency always involves some degree of risk.

Here's a look at the types of ETPs providing exposure to cryptocurrencies and other digital assets, and what investors should know about each investment type.

An ETP is usually a fund that invests in a basket of assets, in this case cryptocurrencies or crypto-related securities. These funds may be designed to track a specific index or be actively managed by a portfolio manager. Like other ETPs, shares of these funds trade on stock exchanges and can be bought and sold at any time during market hours as well as during extended pre-market and after-hours trading sessions.

The convenience of ETPs can make them an attractive way to add cryptocurrency exposure to a portfolio, when it makes sense based on an investor's goals, expectations and personal risk tolerance - and is consistent with a diversified investment strategy.  However, not all cryptocurrency ETPs are the same and investors should have a thorough understanding of the products they're interested in before investing.

There are currently more than 100 cryptocurrency or crypto-related ETPs, some of which offer exposure to cryptocurrencies like Bitcoin, Ether, Solana and XRP. Plus, ETP issuers have filed dozens of applications for new ETPs potentially offering exposure to other parts of the crypto market, such as meme coins, making it likely that this list of digital assets will expand significantly in the coming months.

While some exchange-traded products hold digital assets such as bitcoin directly, others provide exposure to cryptocurrency by investing in futures contracts or other types of derivatives. Plus, there are funds that provide inverse, leveraged, covered call, and other types of strategies based on cryptocurrency. Here's a look at what's currently available in crypto and digital asset ETPs, and what investors should know about each type of investment, including:

• Futures-based cryptocurrency ETFs
• Spot cryptocurrency ETPs
• ETFs holding multiple assets or pursuing options strategies
• Crypto-related convertibles
• Crypto-related equities
• Over-the-counter cryptocurrency trusts

By investing in bitcoin futures, these ETFs own contracts representing agreements to buy or sell cryptocurrencies at a future date and price—rather than holding cryptocurrency directly. While some investors hoped that these ETFs would mimic the spot price of bitcoin, futures contracts can't track spot market prices exactly and management fees can be relatively high.

Additionally, investors who are considering funds that invest in futures contracts must take the "roll yield" into account. Like other funds that invest in commodity futures, futures-based cryptocurrency ETFs must regularly "roll" their holdings by selling expiring contracts and simultaneously replacing them with contracts set to expire further in the future. When the contracts approaching expiration consistently exhibit lower prices than those with expiration dates further out, funds are effectively selling low and buying high with every contract rollover, creating a condition known as contango (the reverse—when subsequent contracts are priced lower than those approaching expiration—is called backwardation).

As a result, futures-based cryptocurrency ETFs have the potential to significantly underperform the spot prices of cryptocurrencies, and many of the futures-based cryptocurrency ETFs failed to resonate with investors due to their potentially high roll costs, complexity and sizable fees. However, there are still some futures-based cryptocurrency ETFs in the market.

The spot price is the current market price at which a particular commodity can be bought or sold for immediate delivery.

Today, there are more than 20 ETPs that provide direct exposure to cryptocurrencies, with fees ranging from about 0.15% to 2.5%, based on their gross expense ratios (the maximum amount an issuer intends to charge). While their net expense ratios may be lower, it's worth noting that the net fees on many of these ETPs have increased since they were first launched, as the initial fee waivers offered by several issuers have expired.

However, there's more to consider than just fees. ETP custodians play a critical role in the ETP ecosystem by maintaining control of the securities in an ETP's portfolio as well as efficiently moving assets into and out of an ETP as directed by the fund's manager to facilitate the creation and redemption of ETP shares. Before investing in any ETP, it's important to be comfortable with its custodian.  The custodians for traditional ETFs, those primarily holding stocks and bonds, tend to be large banks, while the custodians for cryptocurrency ETPs tend to be trust companies managed by cryptocurrency exchanges. Schwab clients can learn more about an ETP's custodian by logging in and reviewing the fund's prospectus—this can be found under the "fund documents" link on the fund's page under Research Tools. For spot crypto ETPs, the custodian is typically identified in the first paragraph.

Investors should also be aware of other risks that can come with investing in a cryptocurrency ETP, which may include:

• High volatility in the price of the underlying cryptocurrency
• Potentially unfavorable changes in the taxation and regulation of a cryptocurrency
• Potential changes to a cryptocurrency's digital asset network, which may lead it to lose support from its users

In addition to futures-based and spot ETPs, there are numerous other variations on the crypto theme to consider. Multi-asset ETFs combine exposure to multiple cryptocurrencies or other assets in a single fund. These ETPs may invest in cryptocurrencies directly (in other words, providing spot exposure), or they may invest in futures. There are also ETPs that combine crypto with non-crypto assets, such as gold, equities or Treasury securities.  In addition to the risks that apply to spot crypto ETFs, the additional risks associated with these funds may include:

• The underlying strategy may be complex and/or not work as intended
• The strategy's historical performance may not reflect new market conditions
• These ETFs may invest in securities that are periodically illiquid
• If the fund invests in futures contracts and grows significantly, it may not be able to execute its strategy due to regulatory limits on the size of its futures positions

Options strategies are also included in this group. Buffer or target outcome ETFs aim to provide downside protection with capped, upside exposure to a particular cryptocurrency. Meanwhile, covered call and option-income funds attempt to generate income in addition to providing crypto exposure. In addition to the risks already mentioned, buffer or target outcome ETFs also contain these risks:

• The index upon which the strategy is built may include features that are not well disclosed
• The caps and buffers stated in a product's name may only apply when the product is purchased on the rebalance date and held throughout the entire outcome period
• Counterparty risk, which is the risk that the other party in a transaction may fail to fulfill their contractual obligations, may be a factor depending on the type of options or other derivative contracts held by the fund

Plus, while many of these funds follow options strategies, most are actually investing in futures contracts to create a pattern of returns that mimic investments in options (this is sometimes referred to as a "synthetic" options strategy). As a result, the cost and risks of futures-based ETPs (discussed previously) may also apply here.

ETPs holding convertible bonds issued by companies that hold cryptocurrencies in their corporate treasuries, which are the reserve funds that serve as a company's checking account and help it manage liquidity, debt, and financing needs, are a recent addition to the crypto universe. These types of convertible bonds aim to offer crypto exposure to fixed income investors. They provide either repayment at par or an option to convert the convertible bond into a predetermined number of shares of the issuer's common stock.

What makes crypto convertibles different from other convertible bonds is that many of their issuers have narrowly defined their business models to depend entirely on the value of their corporate treasuries. In other words, the crypto assets on their balance sheets represent all (or nearly all) of their enterprise values. If the crypto assets appreciate, convertible bond holders may experience outsized returns (especially when compared with other fixed income investments), but if the crypto assets decline in value, there may not be a tangible business able to generate revenue to repay the bonds at par.

Plus, holding cryptocurrency could lead to higher volatility in the company's earnings, and, if the company has significant crypto holdings that fall in value, it could experience a liquidity crisis. Moreover, treasury holdings of crypto are not immune from the risks of fraud and theft.

Investors should also know that crypto-related convertibles frequently trade at a premium to the value of the underlying crypto assets held by these companies. Should the premium decline, or even become a discount, investors may experience losses even if the underlying cryptocurrency increases in value. Investors who want crypto exposure and are not limited to fixed income investments may want to consider more direct alternatives for adding cryptocurrency to their portfolios.

Digital asset ETPs also include funds that invest in the stocks of companies linked to cryptocurrencies, such as the producers of blockchain technology or companies involved in cryptocurrency businesses. These ETPs may be either actively managed or track indexes. While the ETPs in this group frequently tend to hold stocks classified as financials and technology companies, allocations may vary considerably depending on the particular index an ETP tracks, or the strategy pursued by its manager.

For example, blockchain-focused ETPs tend to hold mega-cap multinational companies like large banks and retailers, which may not represent a pure play on cryptocurrency. Meanwhile, companies that are directly engaged in cryptocurrency businesses tend to be smaller and may include crypto miners and cryptocurrency exchanges.

Investors may want to pay particular attention to how an ETP classifies companies as either blockchain-focused or crypto business-focused. This can be determined in various ways, including: (1) an index committee's discretion; (2) a classification system; (3) a company's revenues; (4) a natural language processing (NLP) algorithm; (5) the exchange listing for a company's stock; or (6) the fund manager's discretion, as is often the case for an actively managed ETP.

The risks of investing in funds that hold crypto-related equities may include:

• The index an ETP tracks or its active manager may not be successful at identifying stocks with significant exposure to cryptocurrencies or other digital assets
• Equity prices may not reflect a stock's digital assets or blockchain technology, but instead reflect the performance of its other lines of business
• The ETP may not be diversified, and a single adverse event may have a significant impact on all of the fund's investments

A growing number of cryptocurrency trusts that trade over-the-counter (OTC) are now available, and Morningstar includes these funds with other ETPs in the Digital Assets category. However, investors should understand that these products are not structured like traditional ETPs. They trade more like closed-end funds, since they do not allow for daily creation and redemption of shares, a unique feature of the ETP structure.

These products are often offered at net asset value (NAV) to accredited investors who may be subject to a "lock-up period," or a specific period of time during which they are not permitted to sell their shares. However, once this period expires, these accredited investors may sell their shares in the OTC market. These products may trade at steep discounts or premiums to their NAVs and frequently have expense ratios over 2%.

Investors interested in OTC-traded cryptocurrency trusts should ensure that they understand the risks associated with such investments, which may include:

• High fees
• Propensity to trade at steep premiums and discounts
• The underlying cryptocurrencies held by these funds tend to be less well-known and not well established
• It may be difficult to find information about these cryptocurrencies, and some of them may not be viable as long-term investments
• Additionally, some of these cryptocurrencies depend on the involvement of a core group of developers and users. Should these individuals decide to no longer support a cryptocurrency, its value may decline sharply.

The action in this asset class is enough to keep anyone on the edge of their seat, with potentially more to come as additional cryptocurrency ETPs are approved. If you've decided cryptocurrency exposure is right for you and you'd like to access it through ETPs, just know that there is a wide variety of types to choose from, each with their own strengths and weaknesses.

There are also risks associated with the ETP structure. For example, ETPs are bought and sold at market prices, not at net asset value (NAV) like mutual funds. Therefore, investors may pay more for an ETP than the value of its underlying stocks or bonds (a premium). Conversely, investors may sell an ETP for less than the value of its holdings (a discount). Typically, investors also pay the "spread" when buying or selling ETPs. The spread is the difference between the higher price an investor would pay to acquire a security compared to the lower price an investor would receive to sell it at the same point in time. An ETP's liquidity is based on the number of market makers (firms that stand ready to buy or sell throughout the trading day) that are interested in buying or selling that ETP at given point in time. Higher liquidity can shrink bid/ask spreads, since the more interested market makers there are, the closer the highest and lowest offered prices to sell are likely to be. Similarly, ETPs with lower liquidity tend to have larger bid/ask spreads. Investors will also need to pay attention to market trends, as market volatility can lead to widening of ETP bid/ask spreads, and higher market volatility may also affect premiums or discounts to net asset values. Finally, investors should be aware of an ETP's ongoing management fee or operating expense ratio. This is the fee charged by the fund's sponsor, which can vary, but cryptocurrency ETPs tend to have higher management fees than funds that are less complex.

Make sure you understand the benefits, downsides, and potential performance—because cryptocurrency has tended to be volatile and the ETPs that provide exposure to it may be complex.

To learn more about cryptocurrency ETPs, Schwab clients can log in, click the "Research" tab, then select "ETFs" and locate the ETF Screener. In the "Basic" dropdown, select the "Fund Category" and then select "Alternative." Finally, limit the results to Morningstar's "Digital Assets" category. While reviewing the research pages for individual funds, be sure to check a fund's premium and discount. Some of the ETPs in this category are structured in a way that limits their ability to create and redeem shares. As a result, these funds may trade at prices which are much higher or lower than the value of the cryptocurrencies in their portfolios (as with OTC-traded cryptocurrency trusts).