Leveraged Bitcoin ETFs on the Horizon
With the massive rise in the price of bitcoin in 2017 and into 2018, a lot of mainstream attention has focused on digital currencies. This has seen the introduction of bitcoin futures towards the end of 2017 which allowed many institutional investors easier access into the markets.
Now the latest race between many of the major fund managers in the United States is to see who can be the first to further tap into the massive market that is digital currencies by creating a number of new bitcoin-related investment products called exchange-traded funds (ETFs) for people to invest their money into.
Having perhaps missed out on some of the significant gains made by bitcoin throughout 2017, investors need not fear as they can double their profits potentially when they invest into the planned bitcoin leveraged ETFs.
When these ETF products are eventually introduced, the markets could take off in a significant manner which will be extremely interesting to watch.
The types of funds that are in the works include the likes of leverage funds that would see profits/losses rising or falling twice as much as the changes in the price of bitcoin on a given day. This means that profits will be either be doubled or losses doubled if you invest in this type of leveraged ETF.
An inverse ETF is used to short a particular market or sector, effectively betting that the value of bitcoin will decrease in this case.
While they are awaiting approval from the US securities regulator, Direxion Asset Management have plans in place to introduce these types of products on the Intercontinental Exchange’s Arca exchange as per a filing that was submitted at the end of 2017.
Contained within the filing is a comment about the belief the fund has in these types of products, saying they “will enhance competition among market participants, to the benefit of investors and the marketplace.”
As bitcoin is decentralized, meaning that users can conduct the transaction in a relatively anonymous manner compared to dealing with governments or banks, it is quickly becoming more and more adopted by the mainstream public.
There are many asset managers who are in a race with another to see who will be the first to have their bitcoin-related products approved by the relevant authorities and start accepting investor money.
Very often in the world of finance, the fund that gets a certain type of new investment product on the market the quickest ends up hoovering up a significant portion of investors’ money.
If these new ETFs are brought to the markets, this will mean that all types of investor will have better access to investing in bitcoin, allowing higher amounts to be invested than previously was possible. It will also dramatically add to the already volatile price movements of the cryptocurrency as these changes will be magnified.
While there have been many proposals made by fund managers, to date the United States Securities and Exchange Commission has either rejected or placed proposals on hold. It seems a matter of when not if some of these proposals will be accepted by the authorities.
With bitcoin futures contracts perhaps not performing as well as many institutional investors would have liked after the first month of trading, it will be an exciting space to watch when one or more of these funds have their new ETFs approved by the authorities.
The introduction of more bitcoin derivatives, of course, will be a major event that needs to be closely watched by those involved in the market, as well as altcoins. It also gives investors the chance to potentially increase their profits dramatically.