Pre-market observations on October 5th show that traders who missed the early sharp fluctuations in Bitcoin now have a new focus.
The United States has approved the first batch of 3x leveraged Bitcoin and Ethereum products. This is seen as an important milestone, as prior to this, the leverage limit for crypto funds in the United States was always 2x.
However, these funds are not yet tradable at present, as the issuers still need to wait for SEC to announce that their registration statements have taken effect, and there is no set deadline for this approval order. These products will hold regulated futures linked to Bitcoin and Ethereum, rather than actual tokens.
Senior market insiders quickly pointed out who such funds are designed for.
"Leverage ETF is meant for trading, not for investing,"Bloomberg senior ETF analyst Eric Balchunas stated on X.
These funds must be rebalanced daily to maintain a 3x leverage ratio. This means that more futures need to be bought after a rise and more futures need to be sold after a fall. This mechanical flow of capital typically occurs around the close of trading and can amplify intraday fluctuations. The larger the fund size, the greater the impact. Daily resets also mean that the returns from holding positions over multiple days can deviate significantly from the 3x target, and sometimes even in the opposite direction.
Blockstream The CEO Adam Back put it more directly:
"A strategy that automatically re-leverages will consume capital during sideways fluctuations, especially when dealing with highly volatile assets like Bitcoin..."He said.
This type of loss is known as volatility attenuation. Suppose Bitcoin rises by 10% one day and then falls by 10% the next day, resulting in a final decrease of 1%. However, if a fund with a 3x leverage first rises by 30% and then falls by 30%, it will ultimately experience a 9% decline. When prices fluctuate violently within a range without a sustained one-way trend, the performance of leveraged products becomes worse, and the capital loss becomes more pronounced.
This document also makes it very clear to whom these products are suitable for trading.
Investing in 3 times the amount of Bitcoin ETF is not suitable for all investors and may be considered a speculative product. It should only be considered by those who are able to bear all the risks associated with investing in 3 times the amount of Bitcoin ETF.The document states.
Finally, futures also incur another layer of cost. As the contract approaches expiration, funds are forced to sell the expiring contracts and buy contracts for later months, which tend to be more expensive. This rollover process continuously drags down long-term returns, and this was also a criticism faced by the standard Bitcoin futures ETF when it was first introduced in 2021.
Overall, this approval once again demonstrates that crypto assets are acquiring the same product form as traditional assets. For short-term traders and speculators, this is a powerful tool; however, for long-term holders and risk-averse investors, spot ETF remains the better choice.
Continue to follow.
For more information: For an analysis of today's fake coins and derivatives activities, please refer to "Crypto Markets Today". For a complete list of events this week, please see "Crypto Week Ahead" in CoinDesk.
Today's Signal
The chart displays the daily fluctuations of the Volmex 30-day annualized Bitcoin implied volatility index BVIV, also known as "Bitcoin VIX".
This index measures the expected price volatility of cryptocurrencies.
Since mid-September, the index has remained relatively stable between 35% and 40%, indicating that despite the rise in the US dollar index and US Treasury yields, traders are still pricing for an orderly market environment.
Stable volatility is usually a characteristic of an upward trend. At the same time, long periods of calm often precede significant fluctuations.
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The Definitive Stablecoin Landscape Series : Asia Pacific
As stablecoins enter the regulated financial system, the Asia-Pacific region is becoming a key testing ground. This report outlines the regulations, use cases in the region, as well as the role of RLUSD.
Why it's important:As stablecoins enter the regulated financial system, the Asia-Pacific region is becoming a key testing ground. This report outlines the regulations, use cases in the region, as well as the role of RLUSD.
