The US Securities and Exchange Commission (SEC) received yet another request to approve Wall Street bitcoin exchange-traded funds (ETFs). This time, the New York Stock Exchange (NYSE) wishes to list five new ETFs, so-called leveraged and inverse funds which increase risk and reward.
Wall Street Goes Short, Gets Bear, with Proposed Risky Bitcoin ETFs
The trope for years has been bitcoin’s volatility, risk, is too great for the sober adults of professional finance to be bothered. That myth was thoroughly smashed on 4 January 2018 when the NYSE Arca filed a fifty page request with the SEC. Wall Street wants Direxion Asset Management’s five ETFs, known as leveraged or inverse funds. The proposed funds up the risk level by twice, in either direction, and are short term investments. They’re easily some of the riskiest funds put forward.
ETFs are prized because they’re traded like stocks with the muscle of mutual funds. The SEC has yet to approve bitcoin ETFs, and applications for rule-changes are stacking up. Some estimates have requests for the cryptocurrency to be formally listed at nearly a dozen. This year enthusiasts will learn the financial product’s fate, most experts believe.
Direxion is presently asking five funds be listed: Direxion Daily Bitcoin Bear 1X Shares, Direxion Daily Bitcoin 1.25X Bull Shares, Direxion Daily Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares, and Direxion Daily Bitcoin 2X Bear Shares. If approved they’d trade on the NYSE’s Arca market. Investors could see their returns as much as double; they could also see losses compound in the other direction just as fast.
Twice as Fast in Either Direction
The funds aren’t necessarily tethered to bitcoin’s spot price, but are instead a way to track bitcoin futures on markets such as those created by NYSE rivals Cboe and CME, with “investment results (before fees and expenses) that correlate positively to either 125%, 150%, or 200% the daily return of the target benchmark,” according to the filing.
That assumes a bull market, but, again, losses are multiplied as well which logically means these are for short term investing (longer options are available). ETFs would bring even more mainstreaming to bitcoin with regard to the broader investment community.
It’s a curious move, but the risks are sure to attract investment. One would assume the natural bitcoin price spikes would be enough for adrenaline junkies. But there is still widespread skepticism and worry about actually owning and holding bitcoin among Wall Street types. Nevertheless, such short-term volatility is something many traders value. Indeed the filing insists the Direxion ETFs “enhance competition among market participants, to the benefit of investors and the marketplace.”
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