Volatility Shares unveils first US-listed leveraged bitcoin ETF

Jun 29th, 2023 | By | Category: Alternatives / Multi-Asset

Volatility Shares has introduced the first ETF in the US providing leveraged exposure to bitcoin.

Volatility Shares unveils first US-listed leveraged bitcoin ETF

Bitcoin has rallied approximately 85% year-to-date.

The 2x Bitcoin Strategy ETF (BITX US) has been listed on Cboe BZX Exchange with an expense ratio of 1.85%.

The fund provides twice the daily performance of the S&P CME Bitcoin Futures Daily Roll Index which tracks the value of cash-settled, front-month bitcoin futures linked to the CME CF Bitcoin Reference Rate, an aggregate of bitcoin prices across multiple eligible cryptocurrency exchanges.

The bitcoin futures contracts underlying the index are partially rolled into the following month on a daily basis.

The price of bitcoin has increased by roughly 85% year-to-date, from circa $16,500 at the end of 2022 to $30,600 on 29 June. This marks a notable turnaround for the world’s largest cryptocurrency which lost nearly 65% of its market value last year amid gloomy macroeconomic conditions, rapidly rising interest rates, and a host of negative crypto industry-related events such as the Terra Luna crash and the implosion of FTX, the world’s largest crypto exchange.

Analysts have attributed the current rally to a general weakening of the US dollar, a cooling of inflation, and the Federal Reserve slowing and most recently halting their interest rate hikes. A banking crisis that saw three small- to mid-size US banks fail over a week in March also helped to shine a light on the crypto industry’s potential advantages over the traditional financial sector.

Volatility Shares’ introduction of a leveraged bitcoin ETF in the US enables sophisticated investors to amplify returns from further increases in the price of bitcoin. Leveraged ETFs do come with significant risks, however, which is why they are generally not suitable for a retail audience. Specifically, these funds are not appropriate as buy-and-hold investments as they tend to decay in value if held for an extended period of time, potentially leading to large losses, especially in volatile but range-bound markets.

The launch of BITX marks another milestone in the crypto industry’s march into the mainstream. The US market is already home to inverse bitcoin ETFs as well as several ETFs providing traditional, unleveraged exposure to bitcoin.

All of the above funds deliver their exposure to bitcoin by way of futures contracts. While many issuers have sought to launch directly replicating bitcoin ETFs, the SEC has consistently refused to greenlight these applications, citing concerns regarding validating the ownership of these funds’ underlying tokens.

Many analysts have noted, however, that the SEC’s stance may be softening, leading many big-name institutions including BlackRock and Fidelity to suddenly throw their hat into the ring and file for their own spot bitcoin ETFs.

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