With the first wave of spot bitcoin ETFs on the market, issuers’ next round with regulators will involve strategies designed for the most aggressive traders.
There have been at least a dozen filings with the Securities and Exchange Commission for ETFs that offer short and leveraged long exposure to spot bitcoin ETFs.
If approved, the strategies will work similar to single-stock ETFs that give active traders and speculators easy tools for placing bold bets on the underlying assets, in this case the spot bitcoin ETFs that were approved for trading on Jan. 10.
“You’ve already got a good base of volume and interest and it’s volatile, which is the perfect recipe for leverage issuers,” said Eric Balchunas, ETF analyst at Bloomberg Intelligence.
“This was expected, and I don’t see why they wouldn’t be approved,” he added.
Of the issuers jumping on the opportunity to capitalize on the popularity of spot bitcoin ETFs, Tuttle Capital Management was first out of the gate, filing three inverse and three leveraged ETFs on Jan. 3, a week before the SEC approved the first spot bitcoin ETFs.
Leveraging Spot Bitcoin ETFs
Asked about his expectations to receive approval for strategies that will soup up the volatility of an asset with a short history of extreme volatility, founder Matthew Tuttle cited the volatility of some of the single-stock ETFs already on the market.
“Is bitcoin more volatile than Tesla,” he said, referencing the T-REX 2X Long Tesla Daily Target ETF (TSLT) that he co-launched with Rex Shares in October.
Tuttle’s most recent batch of six filings seeks to offer inverse and leveraged exposures of between 1.5 times and two times the performance of the underlying spot bitcoin ETF.
Tuttle said it hasn’t determined the ETF fees yet, and that the specific underlying ETF for each strategy will depend on the size and liquidity of the spot bitcoin ETF.
“It was only a matter of time before someone would take the next step and propose launching leverage and/or inverse funds using bitcoin as the reference asset,” said John Hunt, partner in the investment management group at the law firm Sullivan & Worcester.
“Considering the potential volatility of the funds, especially because an investor could lose his or her entire investment in a day, I would not be surprised if the SEC requires more disclosure of historical bitcoin price volatility information,” he added.
Ric Edelman, founder of the Digital Assets Council of Financial Professionals, said the market should brace for all manner of strategies riding on the popularity of spot bitcoin ETFs.
“We’ll soon see variations, including inverse funds, two-times, and three-times leveraged funds and actively managed funds that try to outperform bitcoin or garner returns with lower levels of volatility,” he said.
Noah Hamman, chief executive of AdvisorShares, referenced the Volatility Shares 2X Bitcoin Strategy ETF (BITX), which launched last June, as a kind of precedent for regulators.
However, with BITX having attracted just $172 million, Hamman said, “there does not appear to be as much demand for leveraged long exposure, but I expect that will change over time if more investors become comfortable investing in or actively trading bitcoin via an ETF.”
Ben Weiss, chief executive and co-founder of CoinFlip, agrees that since leveraged strategies are nothing new to the ETF space it should be a short step to approving strategies leveraging and shorting the existing spot bitcoin ETFs.
“The ETF approvals last week changed the game by making bitcoin easily accessible to every traditional investor in America which will potentially allow bitcoin to play a part in the everyday investor’s portfolio,” he said. “It only makes sense that leverage, and other tools used in the traditional investing space, would be applied to bitcoin investment products as well.”
Contact Jeff Benjamin at Jeff.Benjamin@etf.com and find him on X at @BenjiWriter