SEC Approves Leveraged Bitcoin and Ethereum Funds for Trading. But Are These ETFs Worth Buying?
Just because you can multiply daily moves, doesn't mean you should.
The Securities and Exchange Commission (SEC) has recently approved two leveraged Bitcoin and Ethereum ETFs, each aiming to provide exposure to triple the daily price movement of the respective cryptocurrencies. These Volatility Shares 3x Bitcoin ETF and Volatility Shares 3x Ether ETFs are set to be listed on an exchange, though they have not yet become available for trading.
The funds achieve their leverage by trading Bitcoin and Ethereum futures contracts, with daily resets ensuring constant exposure. While investors can benefit from amplified gains if the prices of Bitcoin or Ethereum surge, these leveraged ETFs can also lead to significant losses when the prices decline. This risk was demonstrated by the Volatility Shares 2x Bitcoin ETF, which suffered a 61.9% loss in 12 months despite Bitcoin's mere 25.1% decline.
Management fees of 1.85% annually for the Bitcoin fund and 2.78% for the Ether fund are expected to cover only a small portion of potential losses. It is clear that these ETFs are not suitable for the average investor, but rather for institutional players engaging in intricate trading strategies. Nevertheless, the underlying Bitcoin and Ethereum assets remain worth investing in directly or through spot ETFs, as they offer more cost-effective and less volatile options for long-term growth.
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