Leveraged Bitcoin ETFs Explained for Investors

Leveraged Bitcoin ETFs can be a bit tricky to understand, but don't worry, I've got you covered.

A Leveraged Bitcoin ETF, or exchange-traded fund, is designed to track the performance of Bitcoin, but with a twist. It's not just a straightforward investment in Bitcoin, but rather a way to amplify your gains or losses.

For example, if you invest in a 2x leveraged Bitcoin ETF and Bitcoin's price increases by 10%, your investment will increase by 20%. However, if Bitcoin's price drops by 10%, your investment will decrease by 20%. This is because the ETF is using borrowed money to amplify your returns.

Leveraged ETFs can be a useful tool for investors who want to take on more risk in pursuit of higher returns.

A leveraged Bitcoin ETF is a type of exchange-traded fund that aims to amplify Bitcoin's daily returns by using debt and derivatives such as options and futures contracts.

These funds use a 2:1 or 3:1 ratio to magnify exposure to Bitcoin, which can make an already volatile trading strategy far more combustible.

They don't aim to amplify the monthly or annual returns of Bitcoin, but instead track daily changes, resetting each day.

A 2x leveraged Bitcoin ETF would aim to deliver twice the daily return of Bitcoin, but could also deliver twice the daily losses for the ETF holder.

Regulatory approved leverage is a key aspect of these funds, offering investors a responsible way to amplify their exposure to Bitcoin through a regulated product.

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Leveraged Bitcoin ETFs offer significant gains that exceed the tracked index or assets, but they can also lead to significant losses that exceed the tracked index or assets. This is due to the extreme price volatility of Bitcoin, which can result in significant losses for investors in leveraged ETFs.

Investors have a wide variety of securities to trade using leveraged ETFs, and they can make money when the market is declining using inverse leveraged ETFs.

However, LETFs have higher fees and expense ratios compared with traditional ETFs, and they are not long-term investments.

Here are some key points to consider:

Leveraged ETFs offer the potential for significant gains that exceed the tracked index or assets. Investors have a wide variety of securities to trade using LETFs.

However, LETFs can lead to significant losses that exceed the tracked index or assets. These losses can occur due to the effects of compounding, which can result in greater losses than one would ordinarily expect over periods longer than one day.

LETFs have higher fees and expense ratios compared with traditional ETFs. This can eat into your profits and make it harder to achieve your investment goals.

Investors can make money when the market is declining using inverse LETFs. This can be a way to profit from a bearish market or market declines.

However, LETFs are not long-term investments. They are intended for short-term trading and should be actively managed and monitored by investors as frequently as daily.

A different take: Leveraged Etf Long Term

Here are some key pros and cons to consider:

Leveraged ETFs are often structured as exchange-traded notes (ETNs), debt instruments backed by the issuer's credit that bear inherent credit risk.

This means that if the issuer defaults on their debt, you could lose some or all of your investment.

Leveraged ETFs employ derivatives to magnify exposure to a particular index or asset, with leverage coming from borrowing or derivatives like futures contracts, forward contracts, total return swaps, and options.

These funds have higher fees than non-leveraged ETFs, with expense ratios of 1% or more, due to premiums, fees, and interest on derivatives and margin costs.

Using margin to buy stock can become expensive, with fees of 3% or more on the amount borrowed, and short selling can also carry high fees.

Management fees or expense ratios cover operational costs, which can diminish returns over time.

Trading on margin is often less expensive than other forms of margin, but still comes with interest rates and fees.

Here's a breakdown of the costs associated with LETFs:

New market participants are opting for regulated products instead of shady off-shore exchanges.

Leveraged ETFs offer a vehicle to amplify exposure to Bitcoin, which appeals to these investors.

Regulated leverage is a safer option for investors who want to take losses responsibly.

These investors prefer to get their account wiped out using a regulated product rather than an unregulated exchange.

Investors should carefully consider the risks associated with leveraged Bitcoin ETFs, including potential losses and increased volatility.

Investors should review the prospectus or summary prospectus to understand the investment objectives, risks, charges, and expenses before investing.

Leveraged ETFs can increase gains, but they can also increase losses compared to the underlying assets, so it's essential to understand the potential risks involved.

Investors should use caution and consider their risk tolerance before investing in leveraged Bitcoin ETFs, as they entail higher risk and volatility than traditional ETFs.

Here are some key considerations for investors:

A strategy in investing is essentially a plan of action designed to achieve specific financial goals.

Some investment strategies track the price of Bitcoin indirectly, such as Bitcoin strategy ETFs.

These funds may invest in Bitcoin futures or mining stocks, which can lead to returns that deviate from the returns of Bitcoin.

Their indirect nature makes it difficult to accurately predict their performance.

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If you're looking to invest in leveraged Bitcoin ETFs, you can find them in the United States. Volatility Shares' 2x Bitcoin Strategy ETF (BITX) was the first of its kind, launched in June 2023.

This ETF allows customers to gain bitcoin exposure with only half the value of the bitcoin. It's a futures-based ETF that aims to provide twice the performance of the S&P CME Bitcoin Futures Daily Roll Index.

In February 2024, Valkyrie launched a 2x leveraged Bitcoin futures ETF, trading under the ticker BTFX.

If this caught your attention, see: 2x Leveraged S&p Etf

Investors should carefully consider the risks associated with leveraged ETFs, including the potential for increased losses compared to the underlying assets. Leveraged ETFs can amplify both gains and losses, making them a high-risk investment.

Investors should review the prospectus or summary prospectus of a leveraged ETF to understand its investment objectives, risks, charges, and expenses. This will help them make an informed decision about whether to invest in the ETF.

Investors should also consider their own risk tolerance and investment goals before investing in a leveraged ETF. If they're not comfortable with the potential for increased losses, they may want to consider alternative investment options.

Some investors may find that leveraged ETFs are suitable for their investment strategy, but this should be done with caution. Leveraged ETFs are designed for experienced traders and are best suited for short-term trading strategies.

Here are some key risks associated with leveraged ETFs:

Investors should be aware of these risks and carefully consider them before investing in a leveraged ETF.

The performance and pricing of a leveraged Bitcoin ETF can be a bit complex, but let's break it down. As of January 6, 2025, the Net Asset Value (NAV) of LMBONAV is $1M -23.75, while the Market Close is $1M -23.87.

The expense ratio for LMBONAV is 1.09% (Gross) and 1.07% (Net), which is a significant cost to consider. If acquired fund fees and expenses were excluded, the Net Expense Ratio would be 0.95%.

Here's a brief comparison of the expense ratios for the two funds:

Keep in mind that short-term performance is not a reliable indicator of a fund's future performance, and it's essential to consider the overall market volatility when making investment decisions.

Ten different would-be spot Bitcoin ETF issuers filed forms with the SEC in January 2024, disclosing the fees they intend to charge.

Many Bitcoin ETFs are slashing their fees, and some issuers are even offering limited-time promotional fee waivers.

Some issuers are launching new funds, while others are changing existing Bitcoin strategy ETFs into spot Bitcoin ETFs.

The flood of SEC filings continued until hours before the SEC's approval announcement, and may continue still.

NAV and Market Price information as of 01/06/2025 shows that LMBONAV has a 1M return of -23.75% and a 3M return of 12.04%.

The Net Expense Ratio is an important factor to consider when evaluating a fund's performance. For LMBO, the Net Expense Ratio is 1.07%, which includes management fees, other operating expenses, and Acquired Fund Fees and Expenses.

If you exclude Acquired Fund Fees and Expenses, the Net Expense Ratio for LMBO would be 0.95%. This highlights the importance of considering all expenses when evaluating a fund's performance.

The table below compares the NAV and Market Price of LMBONAV and REKTNAV as of 01/06/2025.

Short-term performance is not a reliable indicator of a fund's future performance. It's essential to look at the bigger picture and consider the fund's overall performance over longer periods.