The first leveraged Bitcoin ETF in the United States opened quietly, with a trading volume of nearly $5.5 million on the first day

On June 27, New York time, the first leveraged Bitcoin ETF in the United States (stock code: BITX) opened for trading on the CBOE BZX Exchange.

BITX is a 2x Bitcoin strategy ETF launched by Volatility Shares. According to the company's website, BITX does not directly hold Bitcoin, but is usually equivalent to twice the single-day performance of the S&P CME Bitcoin Futures Daily Rolling Index (stock code: SPBTFDUE), seeking to benefit from the single-day price increase of Bitcoin futures contracts. The management fee of this ETF is 1.85%, which is much higher than the 0.95% charged by BITO, the first Bitcoin futures ETF in the United States.

“Now, crypto traders in the U.S. will have convenient, liquid access to leveraged Bitcoin exposure through a traditional brokerage account, eliminating the need for a crypto trading account during a time of legal uncertainty for such platforms,” Volatility Shares said in a statement.

According to Bloomberg data, BITX had a trading volume of approximately US$500,000 within 15 minutes of its launch, and a trading volume of approximately US$5.5 million on the first day, making it one of the ETFs with the largest first-day trading volume launched this year.

Florida-based Volatility Shares was founded in 2019 and is known for its leveraged and inverse ETFs. It also has three fund products: 2x Long VIX Futures ETF (UVIX), -1x Short VIX Futures ETF (SVIX) and -1x Short VIX Medium-Term Futures Strategy ETF (ZIVB), with a total size of US$160 million.

SEC relaxes its stance?

Bitpush previously reported that the SEC allowed the listing of Bitcoin futures ETFs in October 2021. The assets of the first ETF launched by ProShares quickly grew to US$1 billion, and its asset management scale remains around this level.

BITX’s launch comes as BlackRock files for a spot Bitcoin ETF with the SEC, which some market observers see as a potential good sign for such products to gain regulatory approval, given the asset manager’s stature and near-perfect approval history.

Bloomberg Intelligence ETF analysts James Seyffart and Eric Balchunas said in a tweet that the U.S. Securities and Exchange Commission’s willingness to allow leveraged bitcoin futures ETFs may indicate that bitcoin products “see hope.”

In the tweet, Balchunas also speculated that the approval could be “an early sign of the SEC letting down its guard,” perhaps to consider the idea of ​​other types of Bitcoin ETFs in the future.

Nevertheless, some institutional investors have withdrawn their applications. Direxion and ProShares withdrew their 2x Bitcoin futures applications on June 1 and 7, respectively, and in October 2021, Valkyrie ’s leveraged BTC futures ETF was asked to withdraw by the SEC three days after submission.

James Butterfill, head of research at CoinShares, analyzed that CME's supervision of Bitcoin futures contracts was a "key reason" for the approval of the Volatility Shares proposal. The SEC's main hesitation in approving a spot Bitcoin ETF is related to whether the spot exchange is properly regulated. "If BlackRock can meet the regulatory requirements for adequate supervision of spot exchanges, then the spot ETF is likely to be approved," Butterfill said. "In any case, I expect the approval process to take some time."

“Bitcoin has recovered significantly this year, rekindling investor interest,” said Todd Rosenbluth, director of research at VettaFi. “While futures-based ETFs exist, some investors may be willing to take on the additional risk to get higher returns.”

Growing concerns

Most Bitcoin supporters in the market welcomed the launch of BITX, but there were also some opposing voices. Some industry insiders believed that from the perspective of investor protection, it made no sense to approve a leveraged futures ETF before a simple spot ETF.

Leveraged funds use debt or financial derivatives (Bitcoin futures in BITX's case) as leverage to amplify the returns of a benchmark index . This leverage can mean short-term gains for investors, but it can also lead to huge losses. Due to their high-risk, high-cost nature, leveraged ETFs are rarely used as long-term investments.

One Twitter user quipped: “Yes, 2x Bitcoin futures do protect investors.” ETF Institute co-founder Nate Geraci tweeted: “This will be one of the most ridiculous parts of the Bitcoin ETF story in 5-10 years... 2x leveraged futures product before a simple spot ETF is wild.”

BITO, the first U.S. Bitcoin futures ETF, is still lagging behind BTC so far this year. Market data shows that the asset rose 3.45% to $17.57 on Tuesday. But it is still down more than 50% from its all-time high of $43.32 in 2021.

Dave Nadig, a financial analyst at data company VettaFi, told Bloomberg that he is skeptical about the launch of spot Bitcoin. He said: "In fact, if they do launch, I suspect their lifespan will be short-lived and used only for the narrowest retail use cases."