Exchange of digital assets In August 2021, Gate.io’s leveraged ETFs offering surpassed $420 million in daily trading volume, accounting for 53% of the entire spot trading activity on the platform for the day.
Leveraged ETFs have entered the bitcoin industry after 15 years of use in regular financial markets. Small investments are leveraged to yield substantial profits, diversifying the risks associated with crypto trading and providing significant benefits without trading margins. Leveraged ETFs are becoming increasingly popular among investors.
“According to our data, the greatest single-day volume for leveraged ETF products traded on our platform was $420 million in August 2021. This is a new milestone for our platform and proof that platforms can thrive by developing and giving users with desired features,” said Marie Tatibouet, Gate.io’s Chief Marketing Officer.
Since its debut on the cryptocurrency market in 2019, leveraged ETFs have quickly grown in popularity as one of the most popular trading alternatives given by mainstream cryptocurrency exchanges. So, what is a leveraged ETF, and how did it become one of the most popular crypto exchange offerings?
In A Nutshell: Leveraged ETFs
In the traditional finance sector, Exchange Traded Funds, or ETFs for short, are a popular investment option. The target index of funds can be tracked daily with a fixed leverage ratio using leveraged investment tools such as stock index futures and swap contracts, so that if it moves in the right direction, investors will continue to receive an income in the same percentage ratio as their investment regardless of the price. ProShare launched the first batch of leveraged ETFs based on the Nasdaq and S&P 500 in the US market in the summer of 2006.
Since then, leveraged ETFs have steadily grown in popularity as one of the most popular investment strategies available. For example, the Nasdaq’s 3x leveraged product indicates that if the Nasdaq stock index climbs 1% in one day, the net value of the leveraged ETF offering would theoretically rise by 3% on the same day, providing investors with higher-than-normal returns. There are also reverse leveraged ETFs, commonly known as short ETFs, which are a multiple of the daily tracked index’s inverse. The Nasdaq -3x reverse product means that if the Nasdaq index falls by 1% on a particular day, the net value of the ETF will theoretically gain by 3% on the same day, implying that there is opportunity even in a bad market.
The advantage of leveraged ETFs is that they can be traded freely at any point in time. The primary benefit of leveraged ETFs is that they can open up a larger percentage of returns without having to pay for margins. By using leveraged ETFs in the correct market conditions and with accurate predictions, investors can benefit from higher-than-average returns. Investors can avoid paying margin expenses by extending their trades out over a longer period of time and using interest to cover the costs over time without having to liquidate their positions.
Introducing Crypto Leveraged Exchange Traded Funds (ETFs)
The first bitcoin leveraged ETF was introduced at the end of 2019. Leveraged ETFs were formally launched on the cryptocurrency market, and they were integrated into cryptocurrency exchanges with related products. The most significant distinction between a cryptocurrency leveraged ETF and a standard leveraged ETF is the investment instruments available. Traditional leveraged investing methods such as stock index futures and swap contracts are replaced by matching spot offerings in crypto perpetual contracts in the cryptocurrency leveraged ETF.
Cryptocurrency leveraged ETFs provide all of the advantages of regular leveraged ETFs in terms of investment objectives and strategies, as well as operating procedures. They also allow more flexible leverage trading. The currency x numerous x long and short directions are commonly used to explain it. BTC3L, for example, is a three-fold bullish token for Bitcoin, while BTC3S is a three-fold bearish token for Bitcoin. If BTC increases by 1% on the same day, the net value of BTC3L will grow by 3%, while the net value of BTC3S will decrease by 3%. If BTC falls 1% on the day, the net value of BTC3L falls 3%, and the net value of BTC3S rises 3%, the net value of BTC3S rises 3%. Various exchanges have begun to provide ETF products with differing leverage multiples, such as 5 times leveraged ETFs and 2 times leveraged ETFs, in response to market demand.
Leveraged ETFs have apparent advantages in a unilateral market that continues to rise or fall due to the availability of the daily position adjustment mechanism. Floating profit-adding positions can mimic compound interest, allowing investors to earn higher returns; however, leveraged ETFs have no advantage in a volatile market.
After a rise and decrease in the value of a BTC3L or 3S product, an investor’s holdings will be valued less than $100. Short-term changes can result in long-term, irreversible losses. In a unilateral market, on the other hand, if investors make a mistake in their market judgment, leveraged ETFs can automatically trim some of their positions and stop losses in time to minimize investor losses. As a result, leveraged ETFs are frequently utilized as risk hedging instruments to mitigate transaction risks.
The high risk and volatility associated with investing in the crypto market has always been a significant impediment to cryptocurrencies’ progress and growth. Leveraged ETFs have been a big topic in the market as exchanges develop and innovate to offer fascinating new features and opportunities for investors. It’s no wonder that leveraged ETFs have become some of the most popular trading products on offer from most major crypto exchanges, with lower investment barriers, fewer risks associated with the products, and larger returns for investors.
Gate.io is a website that provides information on various topics.
Gate.io is the world’s largest digital currency exchange, with over 6 million members in 190 countries. Spot, margin, futures, and contract trading are available on the exchange, as well as DeFi goods through HipoDeFi, custodial services through Wallet.io, investments through Gate Labs, and a specialized GateChain platform. In addition, the company provides a fully integrated suite of goods, including its Startup IEO platform, NFT Magic Box marketplace, crypto loans, and more.