On Monday, Defiance ETFs made another move in the realm of leveraged cryptocurrency ETFs, this time focusing on Ethereum (ETH) instead of Bitcoin (BTC).
According to a filing submitted to the U.S. Securities and Exchange Commission (SEC) on Monday, the Defiance 2X Ether Strategy ETF is designed as an ETH Futures ETF. Its aim is to amplify the daily performance of the rolling CME Ether Futures Index, potentially resulting in heightened gains on days when Ethereum performs strongly, but also exposing investors to more significant losses during market downturns.
Defiance ETFs Making Waves
“The Fund’s prospectus highlights its unique approach, stating, ‘Because the Fund seeks daily leveraged investment results, it is very different from most other exchange-traded funds.’ It further emphasizes the heightened risk associated with leveraging, making it riskier compared to non-leveraged alternatives.”
“Leveraged ETFs inherently carry risk due to their volatility and tendency to underperform their tracked assets over extended periods. Defiance acknowledged that its fund may incur losses if Ether futures remain stagnant or experience only modest increases over time.”
“The company cautioned that the Fund is not suitable for investors who do not actively monitor and manage their portfolios.”
“Earlier this week, Defiance also introduced its 2X Short MSTR ETF, offering a leveraged short position on MicroStrategy, a company heavily tied to Bitcoin (BTC) development. Investors view MicroStrategy as a leveraged bet on Bitcoin. Blockstream CEO Adam Back criticized the ETF, labeling it a ‘terrible product’ likely to lead investors to significant losses.”
“On Tuesday, ProShares followed Defiance’s lead by filing for its own 2X and -2X spot Ether ETFs.”
The Importance Of Ether Futures ETFs
The recent filing follows the SEC’s green light for Ether futures ETFs to enter public trading in October. This decision sparked a flurry of applications from approximately a dozen asset managers, prompted by the agency’s approval of Volatility Shares’ first 2X Bitcoin futures ETF in late June.
With its ticker symbol as BITX, this fund has surged by 91% year-to-date, outpacing Bitcoin’s gains of 55%.
The rationale behind the surge in applications was rooted in the belief that if the SEC was willing to endorse such a high-risk product, it might signal an openness to Ether futures ETFs as well. Ether, as the second-largest cryptocurrency historically exhibiting a higher beta than BTC, was a prime candidate.
While initial Ether ETFs didn’t attract significant trading volume compared to their Bitcoin counterparts, their approval hinted at a potential shift in the SEC’s approach to crypto ETFs. Three months later, Bitcoin spot ETFs debuted, attracting a substantial $12.3 billion in net inflows since their launch.
Currently, investors are eagerly awaiting the SEC’s verdict on ETH spot ETFs, although experts remain skeptical about imminent approval.
