Is Direxion’s Short Bitcoin Futures Product A Daring Move?


US ETF issuers are looking for new ways to capture the attention of institutions a week after the watershed launch of Bitcoin ETF. Direxion, for one, is offering an ETF that shorts crypto futures.

October 19th was a monumental day for the entire cryptocurrency industry. Right after ProShares’ Bitcoin ETF welcomed impressive volume on the New York Stock Exchange (NYSE), Bitcoin surged to record levels. BITO’s debut further extended the rally. But this time, firms are getting a little more creative with their offerings.

According to a recent filing with the Securities and Exchange Commission (SEC), the ‘Direxion Bitcoin Strategy Bear’ exchange-traded fund is set to provide managed short exposure to CME Bitcoin futures contracts. Notably, the product will not invest in Bitcoin (BTC) directly.

Direxion’s ETF: Creative But Risks Exist

For the uninitiated, shorting is a bet anticipating that the asset’s price will decline over a certain period of time. Despite the creative nature of Direxion’s Bitcoin ETF, there are several risks that investors should pay heed to. The high volatility of the underlying crypto asset may be another factor that requires investor attention, in addition to other risks associated with liquidity and futures roll.

The SEC filing cautioned the market players, stating

“If you are not prepared to accept significant and unexpected changes in the value of the Fund and the possibility that you could lose your entire investment in the Fund you should not invest in the Fund.”

Will SEC Loosen Its Grip?

This isn’t Direxion’s first bitcoin ETF proposal. As a matter of fact, the SEC had turned down its efforts over the past three years. Besides, Valkyrie investments also added a creative twist by attempting to up the leverage. As per the filings on Tuesday, the crypto investments company plans on offering a 1.25x leveraged Bitcoin futures ETF to investors in the US.

The SEC hasn’t yet approved any spot ETFs. Even though the Bitcoin ETF’s entrance on Wall Street was nothing short of a definitive step forward, it is not easy to impress the regulatory entity.

It took several years for the SEC to approve an exchange-traded product. Only time will tell whether the two ETFs in question make it to Nasdaq.

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