2x ether ETF debuts in US before plain vanilla spot rivals

US exchange traded fund investors can buy a fund offering two times the daily return of ether, but are still waiting for final approval of an ETF that actually invests in the world’s second-largest cryptocurrency.

Volatility Shares launched the 2x Ether ETF (ETHU) on June 4, while ProShares, one of the largest providers of leveraged and inverse ETFs, said it expected ETFs offering twice the daily return of ether (ETHT) and twice the inverse daily ether return (ETHD) to list on the New York Stock Exchange on June 7.

ETHU’s launch comes just days after the Securities and Exchange Commission gave its initial approval for the launch of eight ETFs that invest directly in ether, the native cryptocurrency of the ethereum blockchain.

But the SEC has yet to give any of those ETFs the necessary final approvals they would need to list, giving the leveraged products — which do not invest directly in ether but use derivatives and futures contracts to simulate heightened or negative returns — earlier start dates.

“This is one byproduct of the SEC’s mercurial strategy for regulating crypto ETFs,” said Bryan Armour, Morningstar’s director of passive strategies research for North America. “The ProShares ETFs received approval before spot ether ETFs because it uses derivatives instead of holding ether directly.”

Leveraged ETFs, which use derivatives to deliver boosted returns, have become popular with traders and retail investors for the potentially lucrative short-term gains they offer, but they also have drawn criticism for their propensity to underperform over longer periods of time.

“These new ETFs are designed to address the challenge of acquiring leveraged or short exposure to ether, which can be onerous and expensive,” said ProShares chief executive Michael Sapir in a statement.

Armour cautioned that these sorts of ETFs should not be held for longer than a day despite their high potential returns. The ETFs reset their leverage every day and inexperienced investors who “buy high and sell low in choppy markets” could come off particularly badly he said.

“Most investors should not consider owning these products, and traders equipped to use them could likely generate leverage more efficiently themselves,” Armour added.

ProShares launched the first bitcoin futures ETF in late 2021. The SEC did not approve ETFs that invest directly in bitcoin until January this year.

Since approval, the spot bitcoin ETFs from BlackRock and Fidelity have enjoyed searing inflows as US investors piled in amid a nearly 60 per cent rise in the price of bitcoin since the start of the year. Ether has risen by a similar amount.