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With just over one week to the start of 2018, the New York Stock exchange has filed with the Securities and Exchange Commission for Bitcoin-related exchange-traded-funds (ETFs) to be traded on the Arca platform. Direxion Asset Management created these Bitcoin ETFs to track the price of Bitcoin futures offered by CBOE and CME Group, rather than tracking the price of Bitcoin itself.
The fund will calculate the target benchmark’s value using the last sale price published by the CME, the CBOE, or any other U.S. exchange trading Bitcoin futures contracts on or before 11 a.m. E.T.
Out of the total five ETFs filed by the NYSE, three of them are Bull Fund instruments while the remaining two are Bear Funds instruments. The three Bull Funds, named 1.25X, 1.5X, and 2X, offer returns of 250 percent, 150 percent, and 200 percent respectively.
The document submitted to the SEC states that these funds are short-term instruments meant for single-day trading only. The filing states “….the 1.25X Bull Fund, 1.5X Bull Fund and 2X Bull Fund seeks daily leveraged investment results (before fees and expenses) that correlate positively to either 125 percent, 150 percent or 200 percent the daily return of the target benchmark.”
However, the investors need to take into consideration that is the Bitcoin futures price goes in opposite direction to the investor’s call the loss percentage will also be similar i.e. 125 percent, 150 percent and 200 percent.
The filing reads: “Conversely, its value on a given day (before fees and expenses) should lose approximately 1.25 times, 1.5 times or 2 times, as applicable, as much on a percentage basis as the level of the target benchmark when the benchmark declines.”
The other two ‘Bear Funds’ lets investors bet for the decline in the price of Bitcoin futures. The two Bear Funds are 1X and 2X. This means investors can earn 100% to 200% gains if the target decline prices hit on any given trading day. The multiplier loss for the opposite move of price against the investor’s call will be in similar percentage terms.
The filing reads “If the 2X Bear Fund is successful in meeting its investment objective, its value on a given day should gain approximately two times as much on a percentage basis as the level of the target benchmark when the target benchmark declines. Conversely, its value on a given day should lose approximately two times as much on a percentage basis as the level of the target benchmark when the target benchmark rises.”
As Bitcoin gains popularity, financial institutions are introducing several investment products. For these ETFs, the SEC is currently reviewing and evaluating various options before deciding whether to allow these ‘high-risk, high-reward’ instruments to trade in the market.