ETF (Exchange Traded Funds) is a trading open-end index fund, usually called an exchange-traded fund. It is an open-end fund listed and traded on an exchange with variable fund shares.
In the stock market, ETF index funds represent the ownership of a basket of stocks. They refer to index funds that are traded on stock exchanges like stocks, and their trading prices and fund share net value trends are basically consistent with the index being tracked. Therefore, when an investor buys or sells an ETF, it is equivalent to buying and selling the index that it tracks, and can obtain basically the same return as the index. For ordinary investors, ETFs can also be bought and sold on the secondary market of the exchange after being split into smaller trading units, just like ordinary stocks.
To put it simply, if you can buy stocks, you have to study the thousands of stocks on the market by yourself, and you can buy and sell freely. Buying a fund can simplify the process and give the money to the fund manager for investment, but you cannot buy and sell freely, and you cannot control the investment at will. On top of this, ETFs are simply a basket of stocks that track the trend of the broader market. However, this basket of stocks is not randomly selected, but is selected based on some indexes that indicate the trend of stocks (such as the Standard & Poor's 500 Index). This is less risky than buying stocks. Instead of studying hard and buying junk stocks, it is better to follow the market and buy and sell freely.
Obviously, a Bitcoin ETF is an ETF that tracks the price of Bitcoin. Owning a Bitcoin ETF is equivalent to indirectly owning Bitcoin. The income rises and falls with the rise and fall of Bitcoin, and there is basically no difference. Simply put, ETFs are another form of investment in Bitcoin.
If people in the currency circle are eager for Bitcoin ETFs, then it must be beneficial to the price of Bitcoin. The impact of Bitcoin ETF has the following three aspects.
First, it is conducive to increasing the source of institutional customers. In the past, most of the purchases of bitcoin were retail investors, and some institutional investors were added due to the launch of bitcoin futures. If there is a Bitcoin ETF, traditional funds can also invest in Bitcoin. In other words, if you buy a traditional fund, the fund manager can use your money to invest in a part of Bitcoin ETF, so that Bitcoin investment will increase.
Second, it is conducive to attracting more traditional retail investors. Most of the people who buy and sell Bitcoin are born in the 80s and 90s. Many older investors are not clear about the digital currency purchase process, and with the frequent news of hackers stealing digital currency, they can only stay away. Bitcoin ETF can simplify the purchase process and increase traditional retail investors.
Third, a considerable number of people are not clear about Bitcoin ETFs. The big names and dealers in the currency circle can take the opportunity to speculate, increase the price of the currency, and the influx of funds, and the bull market will come.
What is a leveraged ETF (leveraged token)?
Leveraged ETF products are a kind of financial derivatives that are very popular in traditional financial markets. It is a trading product that achieves a certain multiple (such as 3 times) of the target daily asset return rate under the premise of a given target asset (such as BTC). If the BTC price rises by 1%, the net value of the corresponding 3x leveraged ETF product will rise by 3%; and the net value of the corresponding -3x product will fall by -3%.
Take the positive BTC triple bullish product as an example. If the daily trend of BTC is +10%, +10%, +10%, +10%, then the 4-day return rate of the product is 185%, which is higher than 4th spot gain is 3 times of 44%; if BTC's daily movement is -10%, -10%, -10%, -10%, then the 4-day loss of the product is 76%, which is less than the 4-day spot loss 3 times of 35%; if the daily trend of BTC is +10%, -10%, +10%, -10%, then the 4-day yield of the product is -17%, which will underperform the 4-day spot yield -2% 3 times.
Therefore, when the time spans a rebalancing cycle, leveraged ETFs cannot guarantee that the multi-day cumulative return rate and the spot return rate maintain a fixed multiple. Generally speaking, under the trend of the market, the performance of leveraged ETFs will be better than the declared leverage multiples (that is, the cumulative increase of ETFs in the same direction will exceed 3 times the target rate of return, and the decline of ETFs in the opposite direction will be less than 3 times the target rate of return. ), and the performance of leveraged ETFs under volatile market conditions will be inferior to the declared leverage multiples.
Similar to futures contract products, leveraged ETF products are derivatives with a leverage effect, which can amplify investors' income and become a cheap risk hedging tool. However, compared with futures contracts, leveraged ETF products have the following unique features:
No margin is required, and there is no risk of liquidation (risk warning: if the direction is judged incorrectly, there will be a risk of the price approaching zero under extreme market conditions). For investors who don't have much time to keep track of the market, buying leveraged ETF products can greatly save your energy.
Fixed leverage. For futures holders, as asset prices change, the leverage of contract positions may change, which deviates from the original intention of investors. For example, an investor establishes a low-leverage short futures position. When the asset price rises sharply, the investor's position leverage will become very high, which deviates from the investor's original risk appetite. The leverage multiples of leveraged products are basically constant, allowing investors to better comply with their investment plans. Compared with leveraged spot trading, leveraged ETF products also require no margin and will not have the risk of being liquidated. At the same time, compared to the capital interest cost of leveraged spot trading, the holding fee of leveraged ETF products is lower.