Demand for the investment vehicles that offer leveraged exposure to Bitcoin is soaring as the digital asset hits record highs.
Leveraged futures-based exchange-traded funds such as VolatilityShares’ 2x Bitcoin Strategy ETF (BITX) are seeing flows rivaling spot Bitcoin ETFs. The fund raked in $630 million in net monthly inflows, beaten only by BlackRock and Fidelity, according to data compiled by K33 Research.
Futures-based Bitcoin ETFs currently hold an all-time high equivalent exposure of 83,300 tokens and leveraged Bitcoin ETFs represent nearly 25% of the open interest on CME, which is one of the largest marketplaces for crypto derivatives. Futures premiums on the platform have climbed toward 20% amid record-high open interest, K33 said.
“The massive uptick in flows to 2x leveraged BTC ETFs illustrates the huge demand for leveraged long exposure in BTC of late and is consistent with the increased risk appetite witnessed in BTC derivatives,” according to a note on Tuesday. “Enormous inflows” to the fund are the main catalyst for the surge in open interest on CME.
VolatilityShares’ 2x fund currently holds a Bitcoin equivalent exposure of 36,025 tokens after more than doubling the crypto currency under management 11 days into March, K33 data show.
The increasing interest in such funds has prompted a flurry of new offerings. ProShares is expected to launch five leveraged long and short BTC ETFs within the next month to cater to new market demand and Valkyrie recently launched its 2x leveraged product.
The rise of such funds comes as an influx of investors seek a variety of channels to make leveraged bets on the latest bull run in the crypto market. The US-based institutions tend to use regulated offerings such as crypto futures on CME and spot ETFs from traditional asset managers, while offshore entities turn to the options contracts on Deribit and perpetual futures without an expiration date on Binance, which are among the most popular products for crypto traders.
The funding rates for Bitcoin perpetual futures — a key indicator for leverage in crypto — remain elevated across major offshore exchanges, with Deribit, the leading crypto options trading platform, seeing record open interest and a surge in bullish bets on Bitcoin.
“Perps continue to highlight an immense risk appetite in the market, with funding rates staying exorbitant while open interest fluctuates vividly,” the note said.
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