New ETFs Leverage Bitcoin, Ethereum, and Gold for High-Risk Strategies

Defiance ETFs has proposed four innovative exchange-traded funds (ETFs) that focus on leveraged strategies targeting the price movements of Bitcoin, Ethereum, and gold.

These funds are structured to offer long and short exposure, allowing investors to capitalize on the relative performance between asset pairs.

The ETFs include strategies like long Bitcoin and short Ethereum, as well as long Bitcoin and short gold. By using derivatives such as futures contracts and swaps, the funds provide synthetic exposure to these assets without directly holding them. This approach aims to exploit price differentials, with exposure levels ranging from 150% to 220% for long positions and -150% to -220% for short ones.

Instead of physically holding the underlying assets, these ETFs leverage financial instruments and exchange-traded products (ETPs). This reduces the risks associated with holding digital currencies or physical gold but introduces complexities like counterparty risk and tax considerations.

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The funds will be actively managed, adjusting positions regularly in response to market volatility, and are expected to experience high turnover due to the nature of the leveraged strategy.

The goal of these funds is not to provide a straightforward investment in Bitcoin, Ethereum, or gold but to allow investors to profit from their relative price movements. As an example, the Bitcoin vs. Ethereum ETF would generate returns if Bitcoin outperforms Ethereum, while the reverse applies for the Ethereum vs. Bitcoin ETF. Given the leverage, these ETFs could deliver substantial returns—or losses—depending on market fluctuations.

The proposal also mentions that a portion of the assets may be allocated to a Cayman Islands subsidiary to maintain favorable tax treatment. Given the highly speculative nature of these products, they cater to sophisticated investors seeking to bet on the relative performance of asset pairs rather than a single asset’s price movement.

Alexander Stefanov