Coinbase Fell 50%. This 2X ETF Lost 85%. Here’s the Brutal Math a ‘Comeback’ Has to Overcome

A 2x leveraged ETF targeting Coinbase (COIN) saw its value plummet by 85% as daily compounding turned a seemingly profitable bet into a near-total loss. To simply break even, the fund would need to gain an astounding 567% – a stark illustration of the risks that come with leveraged investing.

The GraniteShares 2x Long COIN Daily ETF (CONL) is designed to deliver twice the daily percentage move of COIN. While this strategy can magnify returns when the stock is on an upward trajectory, it can also exacerbate losses during a correction. CONL lost roughly 85% year-to-date, underscoring the destructive effects of leverage, volatility, and daily compounding when the underlying stock moves against the ETF.

GraniteShares specifically warns investors that daily returns will differ from cumulative returns over longer periods due to the compounding effect of gains or losses each day. This distinction is crucial for understanding the volatility inherent in a stock like COIN, which can see significant rallies and selloffs in a short span.

To recover from an 85% loss, the remaining investment needs to grow by approximately 567%, highlighting the asymmetry in potential gains and losses. For example, an 85% decline reduces a $10,000 investment to $1,500; doubling the investment three times only brings the position to $6,000. To fully recover, the investment must increase sixfold, demonstrating the significant challenge faced by CONL investors after such a drastic dip.

While Coinbase may eventually recover and CONL could rebound, the fund's design means it resets its exposure daily, so past losses are not restored. Investors must use CONL as a leveraged trading vehicle for Coinbase, not as a typical buy-and-hold vehicle. A sustained Coinbase rally could benefit CONL, but the steep climb back to even after an 85% decline is daunting, making it essential for investors to comprehend the risks involved.