In Canada and the United States, a leveraged ETF (Exchange Traded Fund) has been introduced, boosting bitcoin adoption among mainstream investors. Let’s start with an explanation of what a leveraged ETF is.
An exchange-traded fund (ETF) that monitors the price of an underlying asset is called leveraged ETF. Leverage ETFs operate across a wide range of industries and asset types. Gold ETFs, for example, have been available for decades and track the price of gold.
A cryptocurrency leveraged ETF would function similarly, with the price of Bitcoin fluctuating.
ETFs are regulated financial products. As a result, they are traded on traditional stock exchanges rather than digital currency exchanges, such as Nasdaq or the New York Stock Exchange. However, as the distinctions between conventional finance and digital currency become increasingly blurred, this may change in the future.
A leveraged exchange-traded fund (ETF) boosts the returns of an underlying index by using financial derivatives and debt.
What is Leverage ETF?
A leverage exchange-traded fund (ETF) is a marketable security that amplifies the returns of an underlying index by using financial derivatives and debt. A leveraged exchange-traded fund (ETF) may aim for a 2:1 or 3:1 ratio, whereas a traditional exchange-traded fund normally tracks the security in its underlying index one-to-one.
A leveraged ETF’s value is computed in USDT and is generally traded on the spot market. In essence, a leveraged ETF is a share fund linked to an underlying asset’s return rate. The fund management party will rebalance the fund composition if the underlying assets vary against the leveraged ETF beyond a specified level, ensuring the appropriate leverage is maintained.
By trading the appropriate leveraged ETF product, investors can benefit from the yield of underlying crypto assets with a specific multiplier effect which is protected from liquidation risks by the fund management agent’s control mechanisms.
Crypto Leveraged ETFs may lessen the risk of liquidation, but their price may reach zero in severe circumstances and be liquidated. To avoid losses, please pay attention to the difference between the order price and the net value.
The Bitcoin leverage ETF can provide regulated Bitcoin exposure to investors in traditional markets and open the way for more institutions to utilize the digital currency asset class.