tl;dr
Defiance ETFs has filed applications for two new exchange-traded funds, **NBIT** (Bitcoin) and **DETH** (Ethereum), aiming to exploit price discrepancies between spot crypto assets and futures contracts through a market-neutral strategy. The funds buy spot Bitcoin and Ethereum while shorting futures...
**Defiance ETFs Launch Bitcoin and Ethereum Market-Neutral Funds, Targeting Crypto Arbitrage Opportunities**
In a bold move to capitalize on crypto market inefficiencies, Defiance ETFs has filed applications for two new exchange-traded funds (ETFs): **NBIT** (Bitcoin) and **DETH** (Ethereum). These funds aim to exploit price discrepancies between spot crypto assets and futures contracts, using a strategy akin to a hedge fund’s arbitrage playbook. The filings, shared by Bloomberg senior ETF analyst Eric Balchunas on September 16, have sparked interest among investors seeking exposure to crypto without the volatility of direct holdings.
### How It Works: Buying Low, Selling High (and Shorting the Rest)
The NBIT and DETH ETFs operate by **purchasing spot Bitcoin and Ethereum**—like BlackRock’s IBIT and ETHA—and **shorting futures contracts** to lock in profits from price differences. This “market-neutral” approach means returns aren’t tied to whether crypto prices rise or fall. Instead, the funds profit by capturing the **premium that futures contracts typically command over spot prices**.
For example, if Bitcoin’s spot price is $60,000 but its futures contract trades at $65,000, the ETF would buy the spot asset and short the futures, pocketing the $5,000 spread. Bloomberg ETF analyst James Seyffart notes that Ethereum basis trades have delivered **gross annualized returns of around 10%** during stable markets, while Bitcoin’s basis trades hit **11% in recent months**, peaking near double digits during volatile periods.
### Market-Neutral Strategy: Profiting Regardless of Crypto’s Direction
The allure of these ETFs lies in their ability to generate returns **regardless of market direction**. By hedging long and short positions, they sidestep the risks of crypto’s wild swings. However, this isn’t a guaranteed win. Seyffart’s analysis shows Ethereum basis returns dipped into single digits or turned negative during market stress from late December 2024 to mid-March 2025. Bitcoin’s basis trade, meanwhile, delivered low single-digit returns in Q1 2025 before climbing to nearly 8% by late July.
The strategy thrives on **inefficiencies between spot and derivatives markets**. After the November 2024 U.S. election, Bitcoin futures premiums surged to **17% annualized**, though they’ve since cooled. Defiance’s funds aim to capitalize on such gaps, offering a way to “play both sides of the market” without the complexity of managing futures contracts directly.
### Defiance’s Crypto Innovation: From Leveraged ETFs to BattleShares
Defiance has built a reputation for creative crypto-adjacent products. The firm previously launched **leveraged single-stock ETFs** targeting Bitcoin-focused companies like Marathon Digital and Riot Platforms. It also filed “BattleShares” ETFs that simultaneously hold long and short positions across **Bitcoin vs. Ethereum** and **Bitcoin vs. gold** pairs.
The NBIT and DETH filings add to a growing pile of nearly 100 crypto-related ETF applications awaiting approval from the U.S. Securities and Exchange Commission (SEC). For retail investors, these funds could democratize access to strategies that once required massive capital and expertise. As Balchunas notes, “This is institutional-grade arbitrage made simple.”
### The Big Picture: Crypto ETFs Go Mainstream
With Bitcoin and Ethereum’s futures markets maturing, strategies like these are becoming more viable. Yet, challenges remain. Market stress, regulatory hurdles, and the inherent risks of crypto derivatives mean these ETFs aren’t for the faint of heart. Still, for investors seeking diversified exposure to crypto’s growth without the volatility, NBIT and DETH could be a game-changer.
As the SEC weighs its decisions on crypto ETFs, one thing is clear: the race to monetize crypto’s unique dynamics is heating up. Whether these new funds will deliver consistent returns or fall victim to market turbulence remains to be seen. But for now, they’re another bold step in the evolving world of crypto investing.
**What do you think? Are market-neutral crypto ETFs the future of retail investing, or a risky bet in a volatile market?**