Open high and go low, the first leveraged BTC ETF in the United States has lived up to market expectations?

Produced | Odaily Planet Daily

Author | Odaily Qin Xiaofeng

** The first leveraged cryptocurrency ETF in the United States has been listed for three days and has not performed as expected. **

On June 27 (this Tuesday), the "2 x Bitcoin Strategy ETF" (2x leveraged Bitcoin Strategy ETF) issued by the US ETF issuer Volatility Shares officially landed on the BZX exchange under CBOE and started trading.

According to the monitoring of Odaily Planet Daily, 110,000 shares were issued on the first day of launch, with an issue price of US$15, a net asset value of US$1.65 million, and a trading volume of US$5.5 million on the first day, which is the best first-day trading volume of encrypted ETFs issued this year. (Odaily Note: CSOP BTC Futures ETF’s trading volume on the first day was only US$830,000, Samsung’s Bitcoin ETF was only US$98,000).

However, in the following two trading days, the trading volume of Volatility's leveraged Bitcoin ETF began to plummet, with a single day of less than US$300,000-21,768 shares were traded yesterday (29th), with a transaction volume of US$234,000; its ETF The circulation has gradually increased, with 370,000 outstanding shares currently, and the net asset value has grown to $5.7 million, as shown below:

What is a Leveraged Bitcoin ETF? According to the application documents submitted by Volatility Shares to the SEC, the investment results sought by the ETF issued this time are equivalent to twice the single-day excess return of the S&P CME Bitcoin Futures Daily Rollover Index (referred to as the "Rollover Index"). For example, if the extension index rises by 1% every day, the net value of the ETF needs to rise by 2%, and if the extension index falls by 1%, the net value of the ETF needs to fall by 2%.

The "Roll Index" is used to measure the performance of the CME Bitcoin futures market, rebalancing daily between the current month's futures contract and the next month's futures contract. It doesn’t matter if you don’t understand, you just need to know that CME’s Bitcoin Futures Daily Rollover Index is actually basically the same as the CME Bitcoin Futures Index in terms of data and trends—both are affected by Bitcoin spot price trends. As follows:

Therefore, the leveraged ETF issued this time is actually the same as the benchmark index of the previously issued Bitcoin futures ETF, which is all futures data.

In order to achieve the 2x return target, the ETF will take 25% of the fund's total assets to set up a wholly-owned subsidiary to invest in CME Bitcoin futures (become long); the remaining assets will be directly invested in cash, cash-like instruments or High-quality securities, including U.S. government securities, money market funds, corporate debt securities, etc., these assets will be used to provide liquidity or as margin in the future.

The information on the official website shows that the leveraged ETF currently holds CME Bitcoin futures due on July 23 worth $10.708 million, CME Bitcoin futures due on August 23 worth $626,000, and cash equivalents worth $5.69 million. From the perspective of proportion, the total futures position is exactly twice the net value of the fund, which can meet the risk requirement of double leverage exposure.

However, the author still believes that the scale of the leveraged ETF market will not grow very much this time.

First of all, the distribution node is not good, and the homogeneous products have no bright spots. The 2x leveraged ETF is essentially a futures ETF, and the U.S. market has issued a number of Bitcoin futures ETFs such as ProShare, VanEck, Valkyrie, and Hashdex in the past two years, and CME has also launched Bitcoin futures long ago. Volatility Shares is a bit tasteless and does not have much first-mover advantage, which can be seen from the trading volume in the past two days.

Furthermore, management fees are an important factor that directly affects investors' choices. The management fees of Volatility Shares are relatively high among all ETFs. According to statistics from Odaily Planet Daily, CSOP’s bitcoin futures ETF currently has the highest management fee in the ETF market, reaching 2%, while the management fee of ETFs launched in the United States and Canada in the past two years is generally around 1%, and the management fee of Volatility Shares is as high as 1.85% True Not attractive.

Finally, the failure cases of leveraged ETFs have also sounded the alarm for Volatility Shares. As early as April 16, 2021, the world's first cryptocurrency leveraged ETF - Beta Pro Bitcoin ETF (code: HBIT) was listed on the Toronto Stock Exchange. After its launch, the ETF market performance was sluggish. In the past year, the average daily trading volume was only 5,769 shares (with a transaction volume of 100,000 US dollars), and the total asset size was only 3.76 million US dollars; in mid-April this year, the issuer Horizons finally shut down the ETF .

Although this has its own limitations in the Canadian financial market, it also proves that leveraged ETFs do not have high development potential, especially compared to the two spot ETFs launched in Canada during the same period——Purpose BTC spot ETF ($85.13 million) And 3iQ BTC spot ETF ($77.95 million), which is enough to prove that only cryptocurrency spot ETFs are attractive to investors, which is why many traditional investment institutions such as BlackRock, Fidelity, and ARK Investment get together to apply for bitcoin spot ETFs .