• Is Direxion’s Short Bitcoin Futures Product a Risky Bet?

  • A week after the historic launch of the Bitcoin ETF, US ETF issuers are looking for new ways to capture the attention of institutions. Direxion, for example, is selling an ETF that shorts cryptocurrency futures.

    The 19th of October was a watershed moment for the cryptocurrency industry as a whole. Bitcoin surged to record levels immediately after ProShares’ Bitcoin ETF received impressive volume on the New York Stock Exchange (NYSE). The debut of BITO extended the rally even further. Firms are getting a little more creative with their offerings this time around.

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

    Direxion’s ETF Is Innovative, But There Are Risks

    For the uninitiated, shorting is a bet that the price of an asset will fall over a set period of time. Despite the innovative nature of Direxion’s Bitcoin ETF, investors should be aware of several risks. In addition to the risks associated with liquidity and futures roll, the high volatility of the underlying crypto asset may necessitate investor attention.

    The SEC filing forewarned market participants, stating

    “You should not invest in the Fund if you are not willing to accept significant and unexpected changes in the Fund’s value and the possibility of losing your entire investment in the Fund.”

    Will the SEC Relax Its Hold?

    This isn’t Direxion’s first attempt at a bitcoin ETF. In fact, the SEC had rejected its efforts over the previous three years. Furthermore, Valkyrie investments added a creative twist by attempting to increase leverage. According to the filings on Tuesday, the crypto investments firm intends to offer a 1.25x leveraged Bitcoin futures ETF to US investors.

    Spot ETFs have yet to be approved by the SEC. Even though the Bitcoin ETF’s arrival on Wall Street was nothing short of a game changer, impressing the regulatory body will be difficult.

    The SEC took several years to approve an exchange-traded product. Only time will tell if the two ETFs in question are accepted by Nasdaq.

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