Cryptocurrency has spent 2026 on the back foot: Bitcoin is down 25%, while ether (the second-largest cryptocurrency) is down more than 40%. Some funds in the digital assets Morningstar Category have performed far worse: Leveraged ether funds, including Volatility Shares’ 2x Ether ETF ETHU and ProShares Ultra Ether ETF ETHT, have plunged around 75%. Yet at the same time, others in the category have delivered sharp gains: ProShares Short Ether ETF SETH and ProShares UltraShort Bitcoin ETF SBIT are up 40% or more for the year, while ProShares UltraShort Ether ETF ETHD has soared 80%.
From the fund names alone, it’s not hard to get the gist of what’s been driving those results. Some funds are built to magnify crypto’s gains and losses, while others are built to rise when crypto falls. Few other categories are so wild and so varied.
Morningstar’s new research, Decrypting the Digital Assets Category, is a field guide to that terrain—one where the product count has quadrupled in two years, many sponsors are new to fund management, and buyers are very much on their own.
The category has grown fast. Regulators approved spot bitcoin ETFs—funds that hold actual bitcoin, as opposed to futures contracts—in January 2024, and products have proliferated ever since. More than 30 arrived in 2026’s first five months alone, bringing the total to about 170 funds. Assets stand at just under $100 billion—around half its late-2025 high, but up from below $40 billion entering 2024.
That growth has made fund selection harder. The same label can mask wildly different risk profiles. Investors must decide not just whether they want crypto exposure, but what kind—and which fund delivers it most effectively.
5 Ways Crypto Funds Part Company
Funds in the category differ across five key dimensions.
1) The token they target. Bitcoin- and ether-tracking funds hold most of the category’s assets, but many products target other tokens, such as solana, XRP, and dogecoin, or hold a basket of them. That matters because buying a crypto fund is not the same as buying generic “crypto risk.” Each token has its own liquidity and news cycle. A multitoken portfolio blends these different return drivers.
2) How they get exposure. Some funds, known as spot funds, hold coins directly. Others use futures (contracts referencing a future price), options (rights to buy or sell at a set price), or a mix of instruments. That’s not a trivial distinction. It affects how closely a fund tracks its underlying token, as well as its trading costs and tax treatment.
3) Leverage and payoff direction. Leveraged and inverse funds do exactly what they sound like—until you hold them longer than intended. They use futures contracts and other derivatives to achieve their objectives, which are daily in nature. In choppy markets, portfolio rebalancing can compound in ways that frustrate investors who expected a simple multiple of the coin’s year-to-date move.
4) Income features. Some funds manufacture income by selling call options on their holdings. The distributions can look attractive, especially when spot returns disappoint. But the income is not free: You pay for it by giving up part of the upside. In a sharp rebound, an income fund can feel like it has one foot on the brake.
5) Protection structures. Defined-outcome and buffer funds promise a smoother ride. You may be shielded from the first slice of losses over a set period, but you normally accept a ceiling on gains and a fixed window within which protection operates. That buffer is conditional and time-bound, not a general guarantee that the fund is safer.
One Category, Many Risk/Return Profiles
These five dimensions explain why funds sharing a name can behave so differently. A spot fund tracks the price of a coin. A 2-times leveraged fund doubles that daily return. An inverse fund flips the slope, rising when bitcoin (or some other cryptocurrency) falls. An option-income fund flattens the upside, lagging badly in a big rally because it has sold away some of that gain. A buffer fund may cushion a slice of losses over a set window but caps the rise in return.
Understanding which trade-off you are accepting—and for how long—is the real work of crypto-fund due diligence. Decrypting the Digital Assets Category goes deeper, covering asset flows, the major fund providers, and the questions every investor should ask before buying in.