tl;dr
Defiance ETFs has filed with the US SEC for four new actively managed ETFs under the BattleShares label that offer leveraged long and short positions on paired assets: Bitcoin vs. Ethereum, Ethereum vs. Bitcoin, Bitcoin vs. Gold, and Gold vs. Bitcoin. These funds use synthetic exposure through deriv...
Defiance ETFs has filed with the US Securities and Exchange Commission (SEC) for approval of four new actively managed ETFs under the BattleShares label. These innovative funds offer leveraged synthetic exposure by taking simultaneous long and short positions on paired assets: Bitcoin vs. Ethereum, Ethereum vs. Bitcoin, Bitcoin vs. Gold, and Gold vs. Bitcoin.
Unlike traditional ETFs that hold physical assets, these new funds use derivatives such as futures, swaps, options, and US-listed ETFs to gain exposure. The target leverage ranges from 150% to 220% for long positions and -150% to -220% for short positions, allowing them to capitalize on the relative performance of paired assets without owning them directly.
The investment strategy focuses on relative value, aiming to generate returns based on asset performance differentials. For example, the Bitcoin vs. Ethereum ETF profits when Bitcoin outperforms Ethereum, while the inverse applies to the Ethereum vs. Bitcoin ETF. This approach introduces counterparty risk and complexity but avoids custody risks associated with holding digital assets or physical gold.
Due to US tax rules under the Regulated Investment Company (RIC) framework, up to 25% of assets may be held in a Cayman Islands subsidiary to optimize tax treatment. The funds are designed with high portfolio turnover, requiring frequent rebalancing to maintain target leverage and exposure amid market volatility and derivative expiration cycles.
The derivatives-based structure means these ETFs are unsuitable for investors seeking directional exposure to a single asset. Instead, they serve well for those targeting relative value strategies. A real-world example highlights their potential: year-to-date, a strategy long on Bitcoin and short on Ethereum would have been profitable, with Bitcoin gaining 1% while Ethereum declined by nearly 47%.