The First Dogecoin ETF Is Here. Here's 1 Thing Investors Need to Know.

Key Points

• On Sept. 18, the first-ever Dogecoin ETF made its debut.

• While the new ETF gives investors exposure to the spot price of Dogecoin, it is not a pure spot ETF since it uses financial derivatives.

• Investing in this new ETF is not equivalent to investing directly in Dogecoin.

• 10 stocks we like better than ETF Opportunities Trust - REX-Osprey Doge ETF ›

The launch of the first-ever Dogecoin (CRYPTO: DOGE) exchange-traded fund (ETF) kicked off to much fanfare on Sept. 18. On the first day of trading, nearly $17 million flowed into the ETF, and even longtime industry watchers were surprised at how much trading volume there was in the REX-Osprey DOGE ETF (NYSEMKT: DOJE).

But this meme coin ETF may not be what you think it is. Here's what you need to know.

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All spot ETFs are not alike

The new Dogecoin ETF (trading under the ticker symbol "DOJE") kinda, sorta gives investors exposure to the spot price of Dogecoin. However, it does so in a way that, quite frankly, may confuse many people.

The spot Bitcoin (CRYPTO: BTC) and spot Ethereum (CRYPTO: ETH) ETFs actually go out into the spot crypto market, purchase the desired cryptocurrency, and then hold on to that cryptocurrency on behalf of investors. This way, investors get precise 1-to-1 matching to the crypto's spot price.

But that's not what the REX-Osprey DOGE ETF does. It uses financial derivatives to create a spot Dogecoin position, buying and selling these derivatives through a Cayman Islands subsidiary.

Image source: Getty Images.

So its investors don't hold Dogecoin, either directly or indirectly. They hold a "synthetic" position that mimics Dogecoin's spot price. As the offering prospectus clearly tells investors: "Investing in DOJE is not equivalent to investing directly in Dogecoin."

For short periods, this might produce accurate 1-to-1 matching. However, it's a different story over the long haul. This is the exact problem faced by the Bitcoin ETFs that launched before the first true spot Bitcoin ETFs arrived in 2024 -- also based on derivatives of the underlying cryptocurrency.

Is the new Dogecoin ETF right for you?

The new ETF uses a clever regulatory workaround. It's much easier to get approval for this type of ETF. And that explains why the REX-Osprey DOGE ETF was first to market.

But if you're looking for true spot exposure to Dogecoin, you should wait for new spot Dogecoin ETFs, perhaps by the end of the year.

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Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.