Proposed Direxion ETF Would Offer Short Exposure to Bitcoin Futures

Filing follows milestone launches by ProShares, Valkyrie and plans for leveraged bitcoin futures ETF.

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key takeaways

  • Fund would provide an easily accessible way for investors to hedge their bitcoin position without selling, Brinker Capital senior portfolio manager says
  • A similar fund that launched on the Toronto Stock Exchange in April has about $11 million (CAD) in net assets

Fund group Direxion is seeking to launch an offering that would allow investors to systematically short bitcoin futures just days after the first bitcoin futures ETFs in the US hit the market.

The Direxion Bitcoin Strategy Bear ETF offers managed short exposure to CME bitcoin futures contracts, according to an SEC disclosure filed Tuesday evening. It does not invest directly in bitcoin. The filing does not indicate a ticker or expense ratio for the planned offering.

“The fund will generally maintain its short exposure to bitcoin futures during periods in which the value of bitcoin is flat or declining as well as during periods in which the value of bitcoin is rising,” the document states.

The proposed fund may also short an ETF that invests in bitcoin futures and is expected to hold money market funds, deposit accounts with institutions with high-quality credit ratings, and short-term debt instruments, including US government securities and repurchase agreements.

New York-based Direxion has 79 ETFs trading in the US with combined assets of nearly $28 billion, according to ETF.com. A spokesperson for the firm did not immediately return Blockworks’ request for comment. 

The filing comes after ProShares and Valkyrie Investments launched ETFs that would invest primarily in bitcoin futures contracts — the first of their kind in the US. 

The ProShares Bitcoin Strategy ETF (BITO) has more than $1 billion in assets under management after trading for a week. Valkyrie Investments’ Bitcoin Strategy ETF (BTF) also debuted last week, trading $10 million in its first five minutes on the market.

Valkyrie also filed on Tuesday to launch a leveraged ETF that would provide 1.25x exposure to the bitcoin reference rate.

While early demand for long bitcoin futures ETFs has been strong, there is likely demand on the other side as well, according to Grant Engelbart, senior portfolio manager at Brinker Capital.

“Direxion is also likely taking advantage of the recent approvals with a product that is similar but different and arguably important to the marketplace,” he told Blockworks. “There is also a potential to take advantage of the steeply contangoed bitcoin futures curve.”

The Direxion fund would be similar to one already trading in Canada: Horizons ETFs Management’s BetaPro Inverse Bitcoin ETF (BITI). That fund launched on the Toronto Stock Exchange in April and has about $11 million (CAD) in net assets.

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Engelbart said he believes the proposed Direxion fund would see adequate demand split between active traders and short-to-intermediate-term investors, noting that there will be people who feel bitcoin is overvalued that will want to systematically short. 

“While many people hold bitcoin in some fashion, there is not an easy way to play the other side of the market outside of futures, which have limited retail accessibility,” he explained. “There are many cryptocurrency investors that are sitting on large gains, and this tool provides a vehicle to hedge their position without selling that’s easily accessible.”

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