Leveraged bitcoin futures ETF launch set for Tuesday

The first US-based ETF to offer leveraged long exposure to bitcoin futures contracts is set to launch this week. 

Volatility Shares plans to debut its 2x Bitcoin Strategy ETF (BITX) on Tuesday, a spokesperson told Blockworks. 

The fund seeks investment results that correspond to two times the excess return of the S&P CME Bitcoin Futures Daily Roll Index for a single day. 

“Now, US-based crypto traders will have convenient and liquid access to leveraged bitcoin exposure through a traditional brokerage account, eliminating the need for a crypto exchange account during a time of legal uncertainty for such platforms,” a company spokesperson told Blockworks in an email.

Journey to approval

The SEC permitted bitcoin futures ETFs to come to market in October 2021. The first to launch — by issuer ProShares — quickly grew to $1 billion in assets. Its assets under management remain around that level. 

But despite the SEC greenlighting such products that hold bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME), the agency at the time appeared to take issue with leveraged products.

Valkyrie, which launched its own bitcoin futures ETF in October 2021, soon thereafter detailed plans for a Levered BTC Futures ETF — designed to offer 1.25x exposure to the bitcoin reference rate by holding futures, swaps, options and forwards.

The firm withdrew the application a few days later. A source familiar with the matter told Blockworks at the time that the SEC had asked Valkyrie to pull the filing.   

It is unclear what has since transpired, including the apparent SEC shift on the matter. Volatility Shares declined to comment on specific interactions with the SEC. 

“We do not comment on individual investment products,” an SEC representative told Blockworks in an email. 

Dave Nadig, a financial futurist at data firm VettaFi, told Blockworks last month he was “unconvinced” leveraged bitcoin futures ETFs would end up launching. 

“If in fact they do, I suspect they’ll be short lived and only used in the most narrow of retail use cases,” he said at the time.

SEC ‘lightening up’ on bitcoin?

Volatility Shares’ launch follows applications from various fund issuers and exchanges over the last couple weeks — signaling the latest wave of bids for ETFs that would hold bitcoin directly. 

The SEC has not allowed so-called spot bitcoin ETFs to come to market despite fund issuers trying for roughly a decade. 

But Bloomberg intelligence analysts James Seyffart and Eric Balchunas tweeted last week that the SEC’s willingness to allow leveraged bitcoin futures ETFs could signal a general “lightening up” when it comes to bitcoin products.

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But James Butterfill, head of research at CoinShares, told Blockworks the CME’s oversight of bitcoin futures contracts is “the key reason” Volatility Shares’ proposal was approved.

The SEC’s main hesitation around greenlighting a spot bitcoin ETF has been related to a spot exchange having proper supervision, he added.

“If BlackRock can satisfy the regulatory [requirement] that there is adequate supervision of spot exchanges, then it is quite possible a spot ETF will be approved,” Butterfill said. “Regardless, I expect the process of approval to take some time.”

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