Inside the First 2X Leveraged Spot Bitcoin and Ether ETFs

[00:00:00]Global ETF strategist at Direxion Balch Little joins us now. Hey Balch.

[00:00:04]>> Hey Jane, thanks for having me.

[00:00:06]>> Thanks for being here. Let's let's I want to talk about the products, but first let's talk about crypto ETFs more broadly. We saw numbers there. That's the first time in a while I've seen the Ethereum net inflows higher than the Bitcoin ones. Talk to me about what you're watching in the Ethereum ecosystem and what that tells you if anything.

[00:00:24]>> Yeah, look I think it's two stories. One you have a flow story, but then you have this underlying current of continued institutional adoption. I think the storyline there is to look back and something reminiscent of 2022 when you actually had ETH actually bottomed out before Bitcoin and then you actually saw some early adoption there as well. And I think that's what you're seeing now.

[00:00:41]Both assets, I'll call it Bitcoin and Ethereum, they're trading uh like risk assets and it's slightly different than historically people have actually purchased this innovative technology for. I also think the flow conversation is really important. Let me just nail this for you. I think retail the flows from an institutional perspective, they're leveraging the ETFs for uh liquidity. So that's why you see this oscillation going back and forth pretty consistently, but the other part of the retail story is a lot of the flows are being sucked out in into this broader AI theme.

[00:01:11]>> Mhm.

[00:01:11]>> So I think a lot of retail investors are allocating there, but the underlying story is still really really strong when you think about the institutional adoption, the continued support obviously out of Washington as well.

[00:01:20]>> We started the show talking about the the AI theme and some of that capital rotation especially when it comes to retail investors. Just talk to me a little bit about retail sentiment right now. When do you expect to see that capital start to trickle back in?

[00:01:33]>> Yeah, so that's a good question. One I think we need to actually have a broader conversation around portfolio construction for um the retail investor. One I think they tend to follow the hype too much and sometimes they may be misled to when they should be looking at uh I would say assets that are trading at a deeper value than others from a rotation perspective. So what's dominated the news is SK Hynix, obviously SpaceX, and there's a great article in the Wall Street Journal today about the amount of capital that is actually flown into like this AI and I would say broader space theme. When in reality, the underlying opportunity around crypto and Bitcoin Bitcoin and Ethereum, that's really really still strong and fundamental at the technical as well as the I would say um again, institutional adoption level. So, getting people to bring visibility back to that level of um or narrative and conversation is really important. And here's what I'm seeing with the within retail. The long tail opportunity for people who are bullish on Bitcoin and Ethereum, they're still buying. They're utilizing this time at distressed prices to add to their portfolio. But at the macro level, you're seeing again some macro rotation just from a liquidity perspective and I think a de-risking perspective. So, because the asset is trading a little more um cyclical, that's why you're seeing the flows the way that they are.

[00:02:54]>> Let's talk about the two products I mentioned, the 2x leveraged Bitcoin and ETH spot ETFs. I imagine that the demand is mostly coming from retail for these products.

[00:03:03]>> Yeah.

[00:03:03]>> Yeah.

[00:03:04]>> Yeah. So, I'll I'll add a couple of things to that. One, I think why we launched these products right now is really important. Bitcoin and Ethereum and the entire crypto ecosystem has been trading in a very tight range over the last several quarters. And that's actually a good thing for our products and the way that we construct investment vehicles. We're building institutional based products in a very liquid simplified wrapper of an ETF.

[00:03:27]Now, what we've launched is the Bitcoin spot 2x bull ETF as well as the Ethereum Bitcoin spot ETF. And what they're designed to do is to give you 2x exposure to the underlying asset. Why is that important? It's because if you have a high conviction trade in the technical setup for you and while, you know, price action it might be happening to the upside for you, well, you get that compounding effect if you hold that over a day. Now, that can work against you as well because leverage obviously cuts both ways and that can go against you.

[00:03:54]So, if your obviously trade goes against you, you want to be careful and monitor those trades. So, because they are the first spot leveraged ETFs, obviously we have a lot of conviction and we're we're really excited about them.

[00:04:05]>> I'm Let's say I'm a retail trader. Why should I go for the ETF product instead of just getting onto a crypto exchange and opening up a leveraged position on either Bitcoin or ETH?

[00:04:15]>> Well, one margin is expensive, right?

[00:04:17]So, margin is expensive and it could actually go against you. So, that's one.

[00:04:21]The second is we build our derivatives with swaps. Now, that's a counterparty and that's basically allowing us to get 200% exposure to that underlying asset. A typical retail investor would not be able to do that on their own. So, that's one. The second component is because these products are built daily and traded daily, that's what we want the retail investors to understand, so they can actually win more on the compounding side, but at the same time, again, I want to make sure the risk is very clear, they can actually go down just as volatile and just as fast. [music] So, that's why you would want to utilize a product like this versus going to do it on your own. We actually remove some of the steps and it's very liquid and it's easy to access.

[00:05:00]>> Talk to me a little bit about products that are coming like what kind of demand your retail investors have for particular products and institutional?

[00:05:08]How is that informing your road map? Can you tell us a little bit about what's coming next?

[00:05:11]>> Yeah, I think a couple of different things. One, the way that we design and build products is really based off our institutional leadership from our portfolio managers, our trading teams and then our legal team. We want to identify opportunities around income. I think that's really strong right now, especially in a sideways trading market. A couple of things that we're looking at would also be, you know, any type of structured product that we can theoretically bring to market where we have a competitive edge.

[00:05:37]The retail market right now is also looking for risk enhanced risk mitigating products. Not I would say enhanced, but mitigating products. Where can we actually go and build durable solutions given the market volatility? I think everyone's trying to figure out what the Fed is doing, right? They've now taken a hawkish tone, but no one's taking any big moves right now. So, that's why we launched, obviously, these two products, and then we'll continue to launch income products, I think, in the near future.

[00:06:02]>> The last thing I want to ask you, I want to get your opinion on this, and I got to read it because I don't want to misquote him. Uh Bloomberg ETF analyst Eric Balchunas shared on X last week that Bitcoin ETFs are likely going to mirror gold's 22-year ETF history. His phrase was triumph and pain. So, he said, you know, both are wrappers around a non-yielding assets with no cash flow, no no sentiment alone drives performance. He pointed He pointed out that gold briefly became the world's largest ETF in 2011, then spent 8 years in the doldrums before recovering. I just want to get your reaction to that.

[00:06:36]Do you think that Bitcoin ETFs are on the same trajectory as gold ETFs? And what What does that mean for the product?

[00:06:42]>> I love Eric, and I think he uh he actually builds a very fundamental case for why this is a long-term opportunity.

[00:06:50]Again, the macro story is that, okay, you know, you have flows going away from this asset class, but the underlying roadmap is really, really bonafide and strong. So, when you start thinking about the genius act, the Clarity Act coming, you you it's actually a it's a legal and structural imperative of the United States to actually win in this area of building an ecosystem that supports crypto. I think Bitcoin is going to be a very strong winner in that argument as the market continues to adopt this digital-first uh approach to security and a digital ledger. And I think people will want to move for that.

[00:07:25]And I think the other argument is it's still liquid. Like, let's be honest here.

[00:07:28]People like have this narrative where uh crypto is not this liquid asset. You can always trade Bitcoin today or tomorrow in in minutes and seconds for cash if you need it and or obviously to be able to get into the market and do something else. So, I think he's spot-on.

[00:07:42]>> Well, it was a pleasure having you on the show. Thanks so much for joining us today.

[00:07:45]>> Jen, thanks for having me.