🌎 Bitcoin Outperforms Leveraged ETFs Amid Rising Inflows

Bitcoin price is currently outperforming popular leveraged ETFs, which have been gaining traction among investors.

Leveraged Bitcoin ETFs Inflow is Rising

Leveraged Bitcoin ETFs such as the 2x Bitcoin Strategy ETF (BITX) and the ProShares Ultra Bitcoin ETF (BITU) are experiencing increased inflows this year. Data indicates that the BITX ETF has consistently added assets each month, bringing its total assets under management to over $1.39 billion.

Since its launch in April, BITU has accumulated $266 million in assets, demonstrating strong investor demand. Recently, the T-REX 2X Bitcoin Daily ETF was also launched, aiming to challenge existing players like ProShares and VolShares, whose leveraged Bitcoin ETFs have about $2 billion in combined assets. These funds aim to achieve twice the daily return of Bitcoin. For example, if Bitcoin rises by 1% in a day, the fund’s stock will rise by 2%.

Historically, leveraged funds perform better than the underlying asset if its price rises. For example, the ProShares UltraPro QQQ ETF (TQQQ), which generates twice the daily return of the Nasdaq 100 index, has risen by 2,300% over the past decade, compared to the Nasdaq 100 index’s 420% rise. BITX and BITU aim to replicate this performance, given Bitcoin’s long-term bull market since its inception.

Bitcoin is Beating BITX and BITU

Data shows that Bitcoin is outperforming BITX and BITU this year, rising by 27%. In comparison, the BITX ETF is up 25.8%. In the past month, Bitcoin has dropped 17%, while BITX and BITU have declined by 32% and 29%, respectively.

Leveraged ETFs come with significant risks. First, they can be expensive to own. BITX has an expense ratio of 1.9%, while BITU charges 0.95%. Thus, a $10,000 investment in the BITX fund will incur an annual fee of $190, which can compound into thousands of dollars for long-term investors.

Second, Bitcoin goes through periods of booms and busts. For instance, it peaked at $19,906 in 2017, then tumbled to a low of $3,245 in 2019 before bouncing back. It then peaked at $68,987 in 2021, and fell to $15,590 in December 2022.

While such drawdowns are painful for Bitcoin holders, they are worse for leveraged Bitcoin holders. For example, the TQQQ ETF suffered an 80% drop in 2022 when the Nasdaq 100 index fell by 32%.