There’s no clearer indication of an asset class going mainstream than the launch of derivative products — and crypto is no exception. While crypto futures have been around even longer than spot ETFs, the launch of new defined outcome and leveraged products represents a new phase for the nascent asset class.
In this article, we’ll take a closer look at these new products and whether they might be a good fit for your portfolio.
Calamos Launches Defined Outcomes for Bitcoin
Defined outcome ETFs have become extremely popular among stock market investors, growing from $180 million in 2019 to over $20 billion in assets by 2023. Retirees have flocked to these products as a way to protect their nest egg from volatile markets while retaining more upside exposure than conventional fixed income.
The crypto markets may seem like a natural place for these types of products given their tremendous volatility. But, on the other hand, many retirees have little interest in crypto while younger generations seem to enjoy the volatility. Nevertheless, Calamos recently launched a new defined outcome ETF in the space to test the waters.
The Calamos Bitcoin Structured Protection ETF (CBOJ) matches the positive price return of Bitcoin up to a defined cap while protecting against 100% of the losses over a one-year period (before fees and expenses). As a result, investors can capture the diversification benefits of Bitcoin without taking on excessive risk for their portfolio.
With its recent launch, the fund has about 340 days remaining in the defined outcome period with nearly 100% downside protection and a little over 10% upside capture. In essence, this enables investors to participate in Bitcoin’s upside up to a 10% gain without taking on any risk beyond breaking even after a year (and any opportunity costs).
Retirees may find this approach a more palatable way to add Bitcoin exposure to their portfolio. Rather than dealing with the volatility of the asset class, they can build exposure without taking on any downside risk. And the 10% return is roughly the same as the S&P 500’s long-term average (and future returns may skew lower based on its valuation).
Definance Expands Access to Leveraged Crypto ETFs
Calamos may be testing the waters for conservative investors, but Defiance is doubling down on those seeking even more high-risk payout. Of course, the leveraged ETF trend extends well beyond crypto with single stock leveraged funds becoming extremely popular on retail trading platforms like Robinhood.
The Defiance Daily Target 2X Long RIOT ETF (RIOX) applies these strategies to Riot Platforms Inc. (RIOT), a crypto-adjacent company engaged in Bitcoin mining. In particular, the fund aims to provide investors with double the daily returns of the underlying stock, enabling investors to amplify their speculation.
The move follows the launch of leveraged Bitcoin ETFs last year covering the spot market. The ProShares UltraBitcoin ETF (BITU) offers twice the daily performance of spot Bitcoin while the UltraShort Bitcoin ETF (SBIT) aims for twice the inverse of the daily performance of the same reference index tracking spot Bitcoin.
While the new Calamos fund may offer inroads for retirees, RIOX and other leveraged ETFs are clearly targeting the day-trading crowd. Sophisticated investors may also find them helpful for hedging their other positions on a temporary basis to achieve the risk profile they seek within their broader portfolio.
Other Derivative Crypto ETFs
These ETFs are sorted by their YTD total return, which ranges from -44% to 15%. They have AUM between $4M and $865M, with expenses ranging from 0.77% to 1.85%. They are currently yielding between 0% and 11.9%.
| Name | Ticker | Type | Active? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| ProShares Short Ether Strategy ETF | SETH | ETF | No | $4.39M | 15.1% | 2.6% | 1.03% |
| ARK 21Shares Active Bitcoin Futures Strategy ETF | ARKA | ETF | Yes | $16.5M | 1.9% | 11.9% | 0.77% |
| ARK 21Shares Active Ethereum Futures Strategy ETF | ARKZ | ETF | Yes | $8.11M | -19.4% | 3.8% | 0.78% |
| Volatility Shares Trust - 2x Ether ETF | ETHU | ETF | No | $863M | -42.7% | 3.8% | 1.85% |
| ProShares Ultra Ether ETF | ETHT | ETF | No | $159M | -43.5% | 0% | 1.01% |
What’s Next?
Bitcoin has become a $2 trillion asset class over the past decade. While that’s smaller than stocks, bonds, gold, and other subsets of the market, more complex financial products are starting to emerge to broaden its appeal. The futures market and spot ETFs began the trend, but defined outcome funds and leveraged ETFs bring it even further.
Over the coming months, asset managers are also looking at launching products tied to a basket of cryptocurrencies or those that track a mix of alternative assets, such as Bitcoin and gold. Meanwhile, these products could eventually expand beyond Bitcoin to cover Ethereum and other growing crypto assets, like Solana.
