How to potentially maximize your bitcoin strategy with leveraged and inverse ETFs

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How to potentially maximize your bitcoin strategy with leveraged and inverse ETFs

REX Shares has launched two new Bitcoin ETFs designed for active traders seeking leveraged exposure to Bitcoin's price movements. The T-REX 2X Long Bitcoin Daily Target ETF (BTCL) and the T-REX 2X Inverse Bitcoin Daily Target ETF (BTCZ) began trading on July 10, 2024.

These innovative ETFs offer three major characteristics:

  • Track spot Bitcoin prices for more precise performance
  • Can be traded through standard brokerage accounts—a combination that makes leveraged Bitcoin exposure more accessible and potentially more cost-effective for both retail and institutional investors
  • Have a competitive 0.95% expense ratio

Product Overview

BTCL aims to deliver 200% of Bitcoin's daily positive performance, while BTCZ seeks to provide 200% of the inverse of Bitcoin's daily performance. The Fund does not seek to achieve its stated investment objective over a period of time other than a single/one trading day. These ETFs use financial instruments — primarily swaps based on spot Bitcoin prices — to achieve their stated objectives without directly holding Bitcoin. Investing in the Funds is not equivalent to investing directly in the ‘Reference Assets’. The Fund will not invest directly in the technology stocks/Bitcoin or directly short the technology stocks/Bitcoin.

Spot-Based Structure

Unlike some existing Bitcoin ETFs that use futures contracts, BTCL and BTCZ are designed to track spot Bitcoin prices. In fact, these are currently the only pure spot-based 2x leveraged Bitcoin ETFs available in the market. We believe this approach offers several advantages:

  • Price Tracking: A potentially more precise reflection of Bitcoin's real-time market movements — crucial for leveraged products.
  • Cost Structure: Avoid rollover costs associated with future contracts, which can erode returns over time.
  • Direct: A more straightforward structure for investors to understand and analyze.
  • Contango Mitigation: One significant advantage of spot-based ETFs is the mitigation of contango, a situation in which futures prices are higher than the spot price.

Expense Ratio and Fees

Both BTCL and BTCZ carry an expense ratio of 0.95%. In practical terms:

  • BTCL/BTCZ: $9.50 annual fee per $1,000 invested
  • Some futures-based competitors: Up to $18.50 annual fee per $1,000 invested

This competitive pricing structure — nearly half that of some alternatives — can significantly impact returns, especially for frequent traders.

Daily Reset Mechanism

These ETFs rebalance their exposure at the end of each trading day — a feature that optimizes them for short-term strategies but requires an understanding of the effects of compounding.

Here's how it works:

  • Day 1: Bitcoin up 10% → BTCL up 20%, BTCZ down 20%
  • Day 2: Bitcoin down 9% → BTCL down 18%, BTCZ up 18%

Over two days, Bitcoin is up 0.1%, but BTCL is down 1.6%, and BTCZ is down 5.6%. This compounding effect means these ETFs may not precisely track 200% or -200% of Bitcoin's performance over periods longer than one day.

Applications and Trading Strategies

BTCL and BTCZ offer versatile applications for various trading scenarios:

  • Momentum Trading: Amplify gains in trending markets — use BTCL for bullish trends, BTCZ for bearish.
  • Hedging: Institutional investors can use BTCZ to hedge existing long Bitcoin positions — a useful tool for risk management.
  • Volatility Strategies: Profit from Bitcoin's significant price swings — in either direction — using both ETFs strategically.
  • Pair Trading: Create market-neutral strategies by simultaneously using BTCL and BTCZ — an advanced technique for seasoned traders.
  • Short-term Tactical Allocation: Make quick adjustments to crypto exposure without handling digital assets — useful for responsive portfolio management.
  • Trading Options: BTCL and BTCZ are currently the only pure spot Bitcoin ETFs with options available. This provides traders with an additional tool for leveraged exposure to Bitcoin price movements and more complex trading strategies.

The ability to execute these strategies through standard brokerage accounts makes these ETFs particularly attractive to investors who prefer familiar trading platforms.

Important Considerations

  • Daily Objective: These ETFs aim to achieve their stated goals on a daily basis — not over longer periods.
  • Leverage Risk: The use of leverage amplifies both gains and losses — a 1% move in Bitcoin translates to a 2% move in the ETFs.
  • Active Management: Due to the daily reset, these ETFs require regular monitoring.
  • Volatility: Bitcoin's inherent price volatility, combined with leverage, can lead to significant short-term fluctuations.

About REX Shares

REX Shares is an asset management firm specializing in alternative ETF products. It has a history of innovation in the ETF space. BTCL and BTCZ join their diverse lineup, further expanding their offerings in the cryptocurrency investment sphere.

Bottom Line

BTCL and BTCZ provide active traders and institutions with sophisticated tools for executing short-term Bitcoin strategies.

By offering leveraged exposure to spot Bitcoin prices in a regulated ETF format, these products mark a significant development in Bitcoin-related investment vehicles.

*As with any leveraged or cryptocurrency-related investment, potential investors should thoroughly understand the products' mechanics and risks before incorporating them into their trading strategies.

Fund Objective:

The T-Rex 2X Long Bitcoin Daily Target ETF (the “Fund”) seeks daily investment results, before fees and expenses, of 200% of the daily performance of spot Bitcoin. The Fund does not seek to achieve its stated investment objective over a period of time other than a single/one trading day.

The T-Rex 2X Inverse Bitcoin Daily Target ETF (the “Fund”) seeks daily investment results, before fees and expenses, of 200% of the inverse (or opposite) of the daily performance of spot Bitcoin. The Fund does not seek to achieve its stated investment objective over a period of time other than a single/one trading day.

The Fund is not suitable for all investors. The Fund is designed to be utilized only by knowledgeable investors who understand the potential consequences of seeking daily inverse (-2.0X) investment results, understand the risks associated with the use of shorting and are willing to monitor their portfolios frequently. The Fund is not intended to be used by, and is not appropriate for, investors who do not intend to actively monitor and manage their portfolios. For periods longer than a single day, the Fund will lose money if the Reference Assets’ performance is flat, and it is possible that the Fund will lose money even if the Reference Assets’ performance decreases over a period longer than a single day. An investor could lose the full principal value of his/her investment within a single day if the price of the Reference Assets goes up by more than 50% in one trading day. The Fund only intends to use reference assets that are traded on a U.S. regulated exchange.

Investing in the Funds is not equivalent to investing directly in the ‘Reference Assets’. The Fund will not invest directly in Bitcoin or directly short Bitcoin.

Investment Risks

Investing in the Funds involves a high degree of risk. As with any investment, there is a risk that you could lose all or a portion of your investment in the Funds.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about REX Shares. To obtain a Fund’s prospectus and summary prospectus call 844-802-4004. A Fund’s prospectus and summary prospectus should be read carefully before investing.

Investing in a REX Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The REX Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment. For the complete disclosure statement, click HERE.

The Fund has a daily investment objective and the Fund’s performance for periods greater than a trading day will be the result of each day’s returns compounded over the period, which is very likely to differ from -200% of the Reference Assets’ performance, before fees and expenses. Compounding affects all investments but has a more significant impact on funds that are inverse and that rebalance daily and becomes more pronounced as volatility and holding periods increase.

Distributor: Foreside Fund Services, LLC, member FINRA, not affiliated with REX Shares or the Funds’ investment advisor.

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