Can Leveraged Crypto ETFs Make You Rich?

I’ve been digging into these leveraged crypto ETFs lately, and I gotta say, it’s been a wild ride. I mean, who doesn’t like the idea of multiplied gains? But, let’s be real, the risks are sky-high. With the crypto market’s ups and downs, these things are really taking off in popularity, but are they worth it? I’m trying to figure that out, and I thought maybe you guys would want to join me on that journey.

What Are These ETFs, Anyway?

Leveraged crypto ETFs are designed to amplify returns on the daily movements of their underlying assets. They use financial derivatives like futures, options, and swaps to achieve this. So if you’re in a 2x leveraged ETF, you’re looking for double the daily return of whatever benchmark you’re tracking.

GraniteShares, a pretty big player in the asset management game, recently filed for new leveraged ETFs tracking companies like Riot Platforms, Marathon Digital, MicroStrategy, and Robinhood. These will be a mix of 2x long and 2x short options, allowing for bets on both the rise and fall of these stocks.

The Good and the Bad of Leveraged ETFs

How They Work

Leveraged ETFs are structured to give you amplified returns but also come with daily rebalancing that can lead to compounding effects. That sounds great until you realize that in a volatile market, like crypto, the potential for loss is huge.

Risks

1. Volatility Decay: This is a biggie. Leveraged ETFs suffer from volatility decay, meaning that daily rebalancing can hurt long-term performance. In volatile markets, this can be catastrophic.

2. Market Impact: These ETFs can add to market volatility, especially if a lot of them are concentrated in one sector. Talk about making things worse on bad days.

3. Loss Probability: If you’re in a highly volatile environment, you could easily see 99% of your investment wiped out in a year. That’s not just a “what if,” it’s a “when.”

Why Are They So Popular?

Attractiveness of High Returns

The allure of high returns is hard to resist. The T-Rex 2x Long MSTR Daily Target fund has raked in over $1.8 billion in assets. The Defiance Daily Target 2X Long MSTR ETF pulled in a similar amount as well.

Performance Studies

These funds have been outperforming their underlying stocks recently. MicroStrategy’s stock rose 150%, while MSTU and MSTX shares soared 308% and 253%, respectively.

But hold on! If you’re in a bear market, you could be in for a world of hurt. MicroStrategy’s stock dropped 24% in the last 30 days, and MSTU and MSTX fell over 50%. The 3x Nasdaq ETF fell 79% in 2022 when the underlying dropped 32%.

Comparing Crypto ETFs with Traditional Investment Platforms

Risk and Returns

Crypto ETFs are inherently riskier than traditional investment platforms due to the volatility of the crypto market. They can deliver wild swings in returns, and fees might eat into profits more than with standard ETFs.

Traditional Investment Platforms

Traditional platforms usually offer more stable returns with less volatility. They’re often better regulated, but could have higher fees and minimums that reduce net returns.

Accessibility

Crypto ETFs make getting into crypto easier, compared to the complexities of managing digital assets. Traditional platforms might offer exclusive investment opportunities, but often with high minimums.

Final Thoughts: Do These ETFs Fit Your Game Plan?

Leveraged crypto ETFs can offer high returns, but the risks are not for the faint-hearted. They’re more suited to short-term trading strategies where risks can be managed. If you’re in it for the long haul, traditional investment platforms may provide more stable returns with less volatility.

Would these leveraged ETFs work for you? Only you can answer that. If you’re thinking of diving in, make sure you understand the risks and whether these high-stakes bets fit your overall strategy.