What Kind of ETF Product is More Friendly to Cryptocurrency Traders?

6 min readFeb 7, 2022

Cryptocurrency ETFs are common trading products in the crypto space. There are many types of ETF products in the market, such as ProShares’s BITO, ARK’s 21Shares, Grayscale’s GBTC, and 3iQ’s 3iQ CoinShares Bitcoin ETF, all of which belong to Bitcoin ETF.

In terms of category, the above ETFs include both futures ETFs and spot ETFs, and can also be divided into open-end ETFs and closed-end ETFs (for example, GBTC is a closed-end ETF). However, no matter how they are classified, these ETFs are mainly issued by traditional institutions. Their categories only include BTC, ETH and a few ETF products, and their capital exposure has certain thresholds as well.

Meanwhile, another category of ETFs is ETF products launched by cryptocurrency exchanges, such as MEXC’s leveraged ETFs, and leveraged tokens launched by FTX and Binance. Although these ETF products launched by the cryptocurrency exchanges are slightly inferior to the cryptocurrency ETFs of traditional institutions in terms of the trading volume, the former has advantages that the latter cannot match.

1. Diversified choices of ETF products under the sector rotation

Most of the ETF products launched by the above-mentioned institutions include only Bitcoin ETF and Ethereum ETF. Even Grayscale, the one that launches the most, only includes ETFs with specific underlying ETFs such as BTC, ETH, BCH, etc. On the other hand, the number of ETF products launched by the cryptocurrency exchanges and the variety of their tradable category is far greater than the ones introduced by the institutions.

We know that the secondary market of cryptocurrency often sees the rise of sectors. Different projects are pursued by traders every once in a while, or even every day. As for the underlying ETF products such as BTC and ETH, due to their large market cap, the gains in the market uptrend fail to meet the needs of specific traders. In light of this, the leveraged ETFs or leveraged tokens launched by the crypto exchanges provide more options for traders given the variety of their tradable categories.

Currently, MEXC’s leveraged ETFs can be traded in more than 166 categories, including Polkadot, Solana, Avalanche Protocol, Fantom and other public blockchain ecosystems, as well as NFT, DeFi, DAO, Metaverse and other sub-sectors.

As the market cap of projects under these sectors is much lower than Bitcoin and Ethereum, under the unilateral uptrend induced by the sector gaining momentum, their spot gains are much higher than those of Bitcoin and Ethereum. Their leveraged ETF gains have increased even more, much higher than those of the underlying spot and Bitcoin ETF.

Take Terra, the best performing DeFi project in the Cosmos ecosystem, as an example. Its native token LUNA has risen from US$3.9 to a maximum of US$103.3 since May this year, a growth of 2541%. During the same period, the LUNA3L, the MEXC leveraged ETF, rose from $0.017 to a maximum of $8.839, with the highest gain reaching 51,894%.

Apparently, in terms of the gains in the same timeframe, LUNA3L>LUNA>BTC3L.

2. Similarities and differences between leveraged ETFs and leveraged tokens

Leveraged ETF is a type of perpetual leveraged product that magnifies the price changes of the spot product, and aims to provide leverage gains of the underlying assets. The name of the leveraged ETF is represented by “cryptocurrency + leverage + long/short direction”. For example, BTC3L means a 3x long for Bitcoin, while BTC3S means a 3x short for Bitcoin. If the BTC price goes up by 1% on a particular day, BTC3L will go up by 3% and BTC3S will go down by 3%.

Leveraged tokens are similar to leveraged ETFs wherein under the premise of a given target asset (such as BTC), they are also traded products that achieve a certain multiple (e.g. 3x) of the targeted daily asset return given the underlying asset (e.g. BTC).

However, the issuance mechanism of the two is fundamentally different. Leveraged tokens are issued on-chain. Every time a user buys a leveraged token, the corresponding token will be issued on the Ethereum chain, on the contrary, it is burned and destroyed on the blockchain. This is the essential difference between leveraged tokens and leveraged ETFs. Therefore, leveraged tokens can be understood as “leveraged ETFs” issued on a blockchain.

Therefore, when the trading activity on the Ethereum blockchain is high, the trading fee of leveraged tokens become high, and trading becomes congested as well. This does not happen for leveraged ETFs.

Secondly, their issue prices are different. The issue price of leveraged ETFs is $1, while the issue price of leveraged tokens is different. Data on the Ethereum blockchain shows that the price of the leveraged 3x long BTC token is $3460.56 on January 26.

3. What are the advantages of leveraged ETFs?

MEXC is currently the platform with the most complete range of spot trading products in the network, and it launches new projects very quickly. Therefore, the variety of its leveraged ETF tradable categories is primarily attributed to the platform’s rapid response to the market.

Also, the features of MEXC’s leveraged ETF products are worthy of attention.

a. Simple operation, no risk of liquidation

Although ETF is leveraged, it is still essentially spot. Therefore, multiple returns can be achieved by simply buying and selling tokens. Due to its rebalancing mechanism, the leveraged ETF has no liquidation rules.

The figure below is the 15-minute candlestick chart of BTC and BTC3L (3x long for Bitcoin) from January 24 to January 28. We’ll take this as an example. Bitcoin spot rose from $32,986 to $38,910, a growth of only 17.95%. And starting from $38,910, in order to maintain vested profits, we can only go for a passive short.

BTC spot chart, January 24-January 28

At the same time, BTC3L in the MEXC’s leveraged ETF rose from $0.11 to $0.172, a growth of 56.36%. And the BTC spot started to fall after reaching $38,910. At this time, if you have a certain prediction about the market, you can choose to buy BTC3S in the leveraged ETF (3x short) to gain profits from the downtrend.

b. No margin, high capital utilization

Leveraged ETF has high capital utilization. Regardless going 3x long or short, users only need to buy or sell like spot trading. There is also no need to occupy part of the positions as a margin, hence the forced liquidation price won’t be raised or lowered.

c. Compound interest effect

The leveraged ETF rebalance mechanism enables it to have the benefits of compound interest investment. After rebalancing, the profit of the position is automatically added to the newly opened position, which can be suitable for trading in unilateral market trends. Due to the compounding effect, the gains will be much greater than the same leverage on futures products.

Within January 24 to January 28, the gains of BTC 3x long futures was about 53.8%, and due to the compound interest effect, the gains of BTC3L of leveraged ETF could reach 56.36%. Under the same condition, the latter was 2.56% higher than the former.

However, it is worth noting that due to the rebalancing mechanism, leveraged ETF products are not suitable for sideways market trends, but are more suitable for unilateral market trends, otherwise certain erosion will occur.

In conclusion, the ETF products launched by the crypto exchanges are more friendly to the public, and users have more options. Among many ETF products, the variety of tradable categories, risk control and profit mechanism are the core indicators for measuring ETF products.




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