Defiance ETFS has applied for regulatory approval for four new Exchange-Traded Funds (ETFs). Some of these include the simultaneous long Bitcoin (BTC) and the short Ethereum (ETH).
May 6th Submit The US Securities and Exchange Commission (SEC) has revealed funds that include Bitcoin vs. Ethereum ETF, which is a long BTC and a short ETH. Ethereum vs. Bitcoin ETF, this is long ETH and short BTC. Bitcoin vs. Gold ETF, long BTC and short gold. And gold vs. Bitcoin ETF. This is long gold and short BTC.
Under the Battleshares label, the filing structure configures each fund to track the leveraged performance of one asset and another using derivatives. Each fund is actively managed and seeks total revenue through synthetic exposure to underlying assets.
Exposure to the target typically ranges from +150% to +220% in long positions and -150% to -220% in short positions.
Long synthetic exposure to bitcoin, short ethereum
Rather than holding assets, the fund establishes leveraged exposure using a combination of futures contracts, swaps, options, and US registered ETFs or Exchange-Traded Products (ETPS).
According to the prospectus, the structure of ETFs aims to take advantage of the price difference between long and short asset pairs.
The investment paper behind Bitcoin vs. Ether ETFs is that Bitcoin generates returns when it exceeds ether over its holding period. Conversely, Ether vs. Bitcoin ETF is for investors and is hoping to boost performance from Ether.
ETFs do not invest directly in the assets they track. Instead, they use financial instruments issued by other funds or derivative markets to gain exposure.
Up to 25% of assets can be allocated to Cayman Islands subsidiaries, where appropriate, maintaining favorable US tax treatment under regulated investment companies (RIC) rules.
The filing adds that the derivative structure allows funds to avoid custody risks associated with direct holdings of digital assets or physical gold.
Still, this structure brings additional complexity, including exposure to counterparty risk, tax constraints, and high sales due to frequent rebalancing.
High-Flu-over Strategy and Operational Design
The funds are designed to be non-scalable and provide high portfolio turnover as market volatility, asset momentum, and derivative expiration cycles often promote rebalancing.
This strategy involves continually adjusting exposure to maintain target leverage and maintaining balance between long and short positions of the pair.
Due to leverage, investors may see amplified profits or losses compared to the movement of the underlying asset. Product documentation points out that performance is based on relative asset values rather than absolute, making ETFs unsuitable for directional exposure to a single asset.
The annual performance of the “long Bitcoin, short Ethereum” strategy will be extremely profitable for investors. As of the time of reporting, BTC has risen by 1% and ETH has fallen by nearly 47% over the same period.