In a move that will certainly not end well for investors, the New York Stock Exchange has asked the SEC to approve five ETFs including 2x leveraged and inverse flavors, linked to Bitcoin futures – which launched in December on the CME and CBOE, according to a Thursday filing, which is in line with what we said mentioned in August, “we suspect a Bitcoin Futures ETF may actually occur before a Bitcoin ETF.”
The five “derivative of derivative” funds are as follows:
- Direxion Daily Bitcoin 1.25X Bull Shares
- Direxion Daily Bitcoin 1.5X Bull Shares
- Direxion Daily Bitcoin 2X Bull Shares
- Direxion Daily Bitcoin 1X Bear Shares
- Direxion Daily Bitcoin 2X Bear Shares
The target Bitcoin benchmark will be calculated as the last sale price published by the CME or CBOE on or before 11:00 a.m. EST, and “should not be expected to track the performance of the target bencvhmark for any period longer than one business day.”
Additionally, while each Fund will seek daily correlation to the target benchmark, it should not be expected to track dollar for dollar the spot price of bitcoin because the Fund will invest in Bitcoin Futures Contracts rather than directly in bitcoin, and the spot price movements of bitcoin may not correspond directly to price movements of the Bitcoin Futures Contracts
This means that a 1 percent gain in the price of bitcoin futures would result in a gain of between 1.25% and 2% for the bulish funds, and a 1-2% loss on bear shares, although due to the theta associated with the inherent leverage, the securities will ultimately see their value evaporate over time.
Of course, as the filing explicitly warns, “the funds are not intended for long-term investing.” Which means hang on to your hats as the world’s most volatile asset (besides electricity) becomes even more volatile.
While no official tickers have been proposed, some have already floated suggestions (twitter-ant123):
Just like with the underlying futures, during periods of extreme volatility, the NYSE will halt trading in the ETFs pursuant to existing rules that govern listed securities, as well as “during the day in which interruption to the dissemination of the IFV or the value of the Bitcoin Futures Contract occurs. If the interruption to the dissemination of the IFV or the value of the Bitcoin Futures Contract persists past the trading day in which it occurred, the Exchange will halt trading.”