What is a leveraged spot bitcoin ETF?
A leveraged spot bitcoin exchange-traded fund (ETF) aims to multiply returns of the daily performance of bitcoin.
It enables investors to boost their bitcoin exposure by using leverage, which is borrowed funds that increase the size of an investment position. Leveraged spot bitcoin ETFs can potentially generate higher returns if bitcoin's price moves in the owner's favor. However, leverage also magnifies losses in the same proportion.
How does it work?
A leveraged spot bitcoin ETF typically uses financial derivatives, such as futures contracts, to multiply the daily returns of bitcoin.
For example, a 2x leveraged ETF seeks to provide returns twice the daily performance of bitcoin. If bitcoin's price increases by 1% on a particular day, the ETF aims to increase by 2%. If bitcoin's price decreases by 1%, the ETF decreases by 2%.
Leveraged vs non-leveraged spot bitcoin ETFs
A leveraged spot bitcoin ETF amplifies an investor's exposure to bitcoin's price movements and can multiply the asset's performance returns.
However, a standard spot bitcoin ETF tracks the price of bitcoin directly without using leverage to offer returns equivalent to the asset's price movements.
Leveraged ETFs can provide higher potential returns but also come with higher risk and the potential for greater losses, especially in volatile markets.
Buying into one
Investors can purchase a leveraged spot bitcoin ETF through their brokerage accounts or investment platforms.
They can search for the ETF using its ticker symbol on their preferred trading platform and place buy orders for the desired quantity of shares. The process is similar to buying traditional ETFs, but investors should be aware of the risks associated with leveraged products and carefully consider their investment objectives before purchasing.
Examples
The 2x Bitcoin 
BTC
-4.66%
Strategy ETF (BITX), issued by Valkyrie, is considered the first leveraged spot bitcoin ETF to hit the market.
BITX "seeks to provide daily investment results, before fees and expenses, that correspond generally to twice the performance of the S&P CME Bitcoin Futures Daily Roll Index for a single day, not for any other period," according to the fund's website. The S&P CME Bitcoin Futures Daily Roll Index is a benchmark index reflecting the daily rolling of positions from one bitcoin futures contract to another on the Chicago Mercantile Exchange.
The fund was created on June 27, 2023, and is listed on the Chicago Board Options Exchange (CBOE) stock exchange.
Disclaimer: This article was produced with the assistance of OpenAI’s ChatGPT 3.5/4 and reviewed and edited by our editorial team.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
