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2x Ether ETF Debuts in US Before Spot Rivals
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US investors in exchange-traded funds can buy a fund offering twice the daily return of ether, but are still waiting for final approval of an ETF that actually invests in the world’s second-largest cryptocurrency.
Volatility Shares launched the 2x Ether ETF (ETHU) on June 4, while ProShares, one of the largest providers of leveraged and inverse ETFs, said it expected ETFs offering twice the Ether Daily Yield (ETHT) and twice the Ether Inverse Daily Yield (ETHD) will be listed on the New York Stock Exchange on June 7.
ETHU launch comes just days after the Securities and Exchange Commission gave its opinion initial approval for the launch of eight ETFs that invest directly in ether, the native cryptocurrency of the Ethereum blockchain.
But the SEC has yet to give any of these ETFs the necessary final approvals they would need to be listed, giving leveraged products — which don’t invest directly in ether but use derivatives and contracts futures to simulate high or negative returns – earlier start dates.
“This is a byproduct of the SEC’s mercurial strategy to regulate crypto ETFs,” said Bryan Armour, Morningstar’s director of passive strategies research for North America. “ProShares ETFs were approved before ether spot ETFs because they use derivatives instead of directly holding ether.”
Leveraged ETFwhich use derivatives to generate enhanced returns, have become popular with traders and individual investors for the potentially lucrative short-term gains they offer, but they have also attracted criticism for their propensity to underperform over long periods of time.
“These new ETFs are designed to address the challenge of acquiring leveraged or short exposure to ether, which can be onerous and costly,” Michael Sapir, chief executive officer of ProShares, said in a statement.
Armor cautioned that these types of ETFs should not be held for more than a day despite their high potential returns. ETFs reset their leverage every day, and inexperienced investors who “buy high and sell low in volatile markets” could fare particularly poorly, he said.
“Most investors should not consider owning these products, and traders equipped to use them could likely generate leverage more effectively themselves,” Armor added.
ProShares launched the first Bitcoin futures ETF in late 2021. The SEC only approved ETFs that invest directly in Bitcoin in January of this year.
Since their approval, spot bitcoin ETFs from BlackRock and Fidelity have benefited from massive inflows as U.S. investors flocked amid a nearly 60% rise in the price of bitcoin since the start of the year. Ether rose by a similar amount.