Defiance ETFs recently applied for a leveraged cryptocurrency Exchange-Traded Fund (ETF) centered around Ethereum (ETH) rather than Bitcoin (BTC). The Defiance 2X Ether Strategy ETF, as outlined in a filing with the U.S. Securities and Exchange Commission (SEC), seeks to double the daily performance of the rolling CME Ether Futures Index. This means that investors may experience amplified gains on days when Ethereum performs well, but also heightened losses during market downturns. The fund’s prospectus emphasizes that, due to its daily leveraged investment results, it is riskier than other ETFs that do not use leverage.
In addition to the 2X Ether Strategy ETF, Defiance ETFs also filed for a 2X Short MSTR ETF, which is a leveraged short play on MicroStrategy, a Bitcoin development company. This move was met with criticism, as some investors view it as a leveraged play on Bitcoin itself. Blockstream CEO Adam Back referred to the product as “terrible” and warned that investors could face significant losses as a result. ProShares also filed for their own 2X and -2X spot Ether ETFs shortly after Defiance made their filings, continuing the trend of leveraging cryptocurrency ETFs.
The approval of Ether futures ETFs for public trading by the SEC in October set the stage for the recent wave of applications by asset managers seeking to create leveraged ETFs tied to cryptocurrencies. The approval of the first 2X Bitcoin futures ETF in June further encouraged this trend, with the fund seeing significant gains compared to Bitcoin itself. This move by the SEC indicated a potential shift in their stance towards crypto ETFs, leading to increased interest in the market. While the initial Ether ETFs did not generate significant trading volume compared to their Bitcoin counterparts, they signaled a change in how the SEC might approach crypto ETF approvals going forward.
Investors are now eagerly awaiting the SEC’s decision on approving ETH spot ETFs. However, experts are uncertain about the timeline for approval, with some believing that it may not happen in the near future. The introduction of Ether futures ETFs and the subsequent interest in leveraged ETFs tied to cryptocurrencies are reflective of the evolving landscape of the digital asset market. As regulatory authorities like the SEC navigate the complexities of these new financial products, investors and asset managers continue to innovate and explore opportunities for growth in the cryptocurrency space.
