Valkyrie Files Application for Leveraged Bitcoin Futures ETF
(Bloomberg) -- One of the companies that launched a futures-based Bitcoin ETF is looking to debut another -- with amped-up returns.
Valkyrie, which was second to market with a futures-based Bitcoin fund, on Tuesday filed an application with the U.S. Securities and Exchange Commission to launch the Valkyrie XBTO Levered BTC Futures ETF, which would trade under the ticker BTFX. The fund would juice returns by delivering 1.25 times the reference price of Bitcoin, according to a filing. It would list on Nasdaq and would be able to hold derivatives such as futures and options.
“I’m not shocked issuers are already onto leveraged products -- this is what happens when you have a hit,” said Eric Balchunas, an analyst with Bloomberg Intelligence. “What’s intriguing about this one is it’s 1.25-times, which is like Diet Coke -- it’s really minor.”
The Bitcoin reference rate would be calculated on a daily basis and would aggregate the notional value of Bitcoin trading activity across major Bitcoin spot exchanges, according to the filing.
The two ETFs tracking Bitcoin futures premiered to much fanfare last week. The first -- the ProShares Bitcoin Strategy ETF, or ticker BITO -- accumulated more than $1 billion in assets in just days.
But on Twitter, others echoed Balchunas’s sentiment, with one user invoking a famous line from the movie “Zoolander”:
Funds that invest in futures must continually roll forward the exposure as the contracts expire, paying a fee to do so along the way. That process eats into returns, causing the ETF’s performance to become unmoored from the asset it tracks.
“We all know tracking Bitcoin using futures has a roll cost so not only will this attract traders who might want a little extra pop, but it’s possible if Bitcoin goes on a run, that little bit of leverage could offset the roll cost,” said Balchunas. “On the flip side, if there’s volatility, it will likely corrode the returns medium and long term.”
Leveraged products “come with their very own set of risks that you hope people take their due diligence to understand before they ever invest in something like that,” JJ Kinahan, chief market strategist at TD Ameritrade, said by phone.
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