Defiance ETFs Files For Four New Leveraged Crypto ETFs

Defiance ETFs has filed for regulatory approval of four new exchange-traded funds (ETFs) that feature simultaneous long and short positions on Bitcoin (BTC), Ethereum (ETH), and gold. The filing, submitted on May 6 to the US Securities and Exchange Commission (SEC), outlines four distinct funds: the Bitcoin vs. Ethereum ETF, the Ethereum vs. Bitcoin ETF, the Bitcoin vs. Gold ETF, and the Gold vs. Bitcoin ETF. Each of these funds is designed to track the leveraged performance of one asset against another using derivatives, and they are all actively managed to seek total return through synthetic exposure to the underlying assets.

The target exposure for these ETFs typically ranges from +150% to +220% for long positions and -150% to -220% for short positions. Instead of holding spot assets, the funds establish leveraged exposure using a combination of futures contracts, swaps, options, and US-listed ETFs or exchange-traded products (ETPs). This structure aims to capitalize on price differentials between the long and short asset pairs. For instance, the Bitcoin vs. Ethereum ETF is designed to generate returns when Bitcoin outperforms Ethereum, while the Ethereum vs. Bitcoin ETF is intended for investors who anticipate stronger performance from Ethereum.

None of the ETFs directly invest in the assets they track. Instead, they gain exposure through financial instruments issued by other funds or derivatives markets. Up to 25% of the assets may be allocated to a Cayman Islands subsidiary to maintain favorable US tax treatment under Regulated Investment Company (RIC) rules. This derivative structure allows the funds to avoid custody risks associated with direct holdings of digital assets or physical gold. However, it also introduces additional complexity, including exposure to counterparty risk, tax constraints, and high turnover due to frequent rebalancing.

The funds are designed to be non-diversified and will have high portfolio turnover due to frequent rebalancing driven by market volatility, asset momentum, and derivative expiration cycles. The strategy involves continuously adjusting exposure to maintain target leverage and balance between the paired long and short positions. Due to the leverage, investors may see amplified gains or losses relative to the underlying asset movements. The product documentation notes that performance is based on relative, not absolute, asset values, making the ETFs unsuitable for directional exposure to a single asset.

According to the investment thesis, the year-to-date performance of the “long Bitcoin, short Ethereum” strategy would be highly profitable for investors. As of the latest data, Bitcoin is up by 1%, while Ethereum is down by nearly 47% in the same period. This highlights the potential for significant returns from these ETFs, given the right market conditions and asset performance dynamics.