Defiance ETFs, a prominent investment firm, has recently submitted an application for a new leveraged cryptocurrency exchange-traded fund (ETF) focused on Ethereum (ETH). This is a departure from their previous Bitcoin (BTC) ETF filings. According to the filing with the U.S. Securities and Exchange Commission (SEC), the proposed Defiance 2X Ether Strategy ETF is designed to provide double the daily performance of the rolling CME Ether Futures Index. As a result, investors can expect amplified gains during periods of Ether’s strength, but also heightened losses during market downturns.
The prospectus for the fund emphasizes that due to its daily leveraged investment strategy, it differs significantly from most other ETFs and carries higher risk. Leveraged ETFs are known for their volatility and tend to underperform the assets they track over longer timeframes. Defiance acknowledges that their fund may incur losses if Ether futures remain flat or experience only modest gains over extended periods. Consequently, the company advises that the fund is intended for active investors who actively monitor and manage their portfolios.
In addition to their Ether ETF filing, Defiance recently made headlines by submitting an application for a 2X Short MSTR ETF. This ETF is a leveraged short play on MicroStrategy, a prominent Bitcoin development company. However, this move received criticism from Blockstream CEO Adam Back, who referred to the ETF as a “terrible product” that could lead investors to significant losses.
Following Defiance’s lead, ProShares also filed for their own 2X and -2X spot Ether ETFs, indicating an increasing interest in leveraged crypto products.
The approval of Ether futures ETFs by the SEC in October was a significant development in the cryptocurrency market. This prompted numerous asset managers to submit applications for similar products, following the approval of the first 2X Bitcoin futures ETF by Volatility Shares in June. The performance of the BITX ETF, which has gained 91% year-to-date compared to Bitcoin’s 55% increase, further fueled the interest in these leveraged products.
The approval of Ether futures ETFs signaled a potential shift in the SEC’s stance on crypto ETFs. This was later confirmed when Bitcoin spot ETFs were introduced to the market, attracting $12.3 billion in net inflows since their launch. Investors are now eagerly awaiting the SEC’s decision on ETH spot ETFs, although experts remain skeptical about their imminent approval.
As the cryptocurrency market continues to evolve, the introduction of leveraged ETFs offers investors new opportunities to amplify their gains and exposure to digital assets. However, these products come with increased risk and require active management to navigate the volatile market conditions.
