Crypto ETF Portfolio Disclosure

Betterment offers a cryptocurrency ETF portfolio strategy (“Crypto ETF portfolio”) for investors who want limited exposure to digital assets (referred to as “crypto” or “crypto assets”) within a managed portfolio composed of exchange traded funds (“ETFs”).

The Crypto ETF portfolio is currently composed of spot Bitcoin ETFs and spot Ethereum ETFs (together, “crypto ETFs”) to provide clients with exposure to the two largest crypto assets, Bitcoin and Ethereum, weighted generally by their market capitalization. Spot ETFs track the price movements of Bitcoin and Ethereum in real time by holding crypto assets, as opposed to futures ETFs which track the price movements of cryptocurrency futures contracts. Different cryptocurrency spot ETFs use different methodologies for tracking price, so price movements may vary between the spot crypto ETFs selected for the Crypto ETF portfolio and other spot crypto ETFs for the same digital assets. The Crypto ETF portfolio also includes a small allocation to a U.S. Treasury ETF.

The crypto ETFs selected for inclusion in the Crypto ETF portfolio are selected based on Betterment’s investment selection process, which evaluates ETFs for inclusion based on cost to trade and cost to hold the funds, among other factors. As with every portfolio strategy that Betterment offers, Betterment has the discretion to choose which specific crypto ETFs to purchase or sell to further clients’ investment objectives, as well as when to place trades for those ETFs. The particular ETFs used in the Crypto ETF portfolio are subject to change.

ETF returns may fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed, or sold, may be worth more or less than their original cost. The crypto ETFs bear increased risk relative to other broad-market ETFs based on their concentration of exposure to underlying crypto holdings and the increased volatility of those holdings as compared to more diversified U.S. stock and bond ETFs. Crypto ETFs represent a speculative investment and involve a higher degree of risk relative to most diversified, unlevered stock and bond ETFs. Supply of the underlying crypto assets generally is determined by a computer code, not by a central bank or identifiable legal entity, which also impacts volatility. Other factors that impact the price volatility of the underlying crypto assets, include, but are not limited to investors’ expectations with respect to the rate of inflation, general market sentiment about crypto as an asset class, interest rates, currency exchange rates or future regulatory measures (if any) that restrict the trading of crypto or the use of crypto as a form of payment. There is no assurance that cryptocurrencies and/or crypto assets will maintain their long-term value in terms of purchasing power, or that acceptance of cryptocurrency as a medium of exchange will grow.

Investors should also consider the following risks of holding crypto ETFs:

• Volatility: Historically, Bitcoin and Ethereum have experienced rapid increases in price followed by similarly rapid decreases in price. As is true for all investments, prior performance of a crypto ETF is not necessarily indicative of future results. Clients should be prepared to bear the risk of permanent loss of principal in their crypto ETF investments.
• Limited Investment History: Crypto ETFs have only emerged recently as an investment opportunity and crypto spot ETFs have emerged even more recently. It is unclear what the long-term performance of crypto ETFs is likely to be, and their abbreviated history does not provide a reliable basis for modeling future returns.
• Technology Risk: The crypto assets underlying the crypto ETFs are created, issued, transmitted, and stored according to protocols run by computers in the crypto assets network. It is possible these protocols have undiscovered flaws which could result in the loss of some or all of the underlying crypto assets. There may also be network scale attacks against these protocols that result in the loss of some or all of the underlying crypto assets. Some underlying crypto assets may be created, issued, or transmitted using experimental cryptography that could have underlying flaws. Advancements in quantum computing and artificial intelligence could lead to the breakdown of the sophisticated cryptographic protocols used for managing crypto assets. Betterment makes no guarantees about the reliability of the cryptography used to create, issue, or transmit the crypto assets underlying the crypto ETFs. 
• Blockchain Risk: Certain crypto assets may rely on or are built on a public or third-party blockchain, and the success of such a blockchain may have a direct impact on the success of the crypto assets, as well as the success of other blockchain and decentralized data storage systems that are being used by the crypto assets. There is no guarantee that any of these systems or their sponsors will continue to exist or be successful. This could lead to disruptions of the operations of the crypto assets underlying the crypto ETFs and could negatively impact the returns of the crypto ETFs.
• Regulatory Risk: There is significant uncertainty regarding the regulatory treatment of crypto assets in the U.S. The effect of any future regulatory change on crypto is impossible to predict, but such change could be substantial and adverse and could negatively impact the liquidity and/or returns of the crypto ETFs.

Investors considering the Betterment Crypto ETF portfolio should understand how it operates with Betterment’s automated portfolio management and tax management features.

There are several features of Betterment’s service that either will not work or will work differently for the Crypto ETF portfolio. For goals for which the Crypto ETF portfolio is elected, Betterment’s tax loss harvesting feature will not work. Tax loss harvesting will continue to work for non-Crypto ETF portfolios in taxable accounts, although there may be reduced opportunities for TLH to harvest losses for clients who elect different portfolio strategies for multiple goals. See Betterment’s TLH disclosures for further detail. Betterment will not recommend a glide path for goals for which the Crypto ETF portfolio is elected, and Betterment’s auto-adjust feature is unavailable for the Crypto ETF portfolio. Additionally, the Crypto ETF portfolio is only available for taxable accounts and therefore cannot be elected for a tax coordinated goal or tax-advantaged account.

Investing portfolios, including the Crypto ETF portfolio, require a minimum balance in order for a rebalancing transaction to occur. See Betterment’s portfolio minimum disclosures for further details. If an investing portfolio balance exceeds the required minimum, Betterment will perform automated rebalancing to correct drifts in allocations, which seek to align the portfolio back to its target weights. The drift threshold to trigger rebalancing in the Crypto ETF portfolio differs from the threshold for Betterment’s Core portfolio and other U.S. stock and bond portfolios. The Crypto ETF portfolio also prioritizes achieving the target allocation ahead of minimizing short-term capital gains. This means that the Crypto ETF portfolio may be subject to rebalancing even if it causes an investor to incur short-term capital gains. Clients will not be able to turn off rebalancing for goals for which they elect the Crypto ETF portfolio. See Betterment’s Auto Adjust and Rebalancing disclosures for further details.