New York Stock Exchange Files for Leveraged Bitcoin ETFs With the SEC

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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. These Bitcoin ETFs are created by Direxion Asset Management and will be tracking the price of the Bitcoin futures offered by CBOE and CME Group instead of tracking the price of the cryptocurrency itself.

The target benchmark’s value will be calculated as the last sale price published by the CME or the CBOE or any other US exchange that subsequently trades 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 are categorized with the names 1.25X, 1.5X and 2X, and will offer 250 percent, 150 percent and 200 percent returns respectively.

According to the document sent to the SEC, these funds are short-term instruments are intended to be traded only for a day. 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 the investor happens to get 100% and 200% gains if their target decline prices are met on any given day of trading. 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.

With the growing popularity of Bitcoin, financial institutions are coming up with several investment products. For these ETFs, SEC with first review considering and weighing several options and will take a further call whether to allow these ‘high-risk high-reward’ instruments to be traded in the market.

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