As the public’s interest in crypto-linked investment vehicles grows, the asset management company Direxion has introduced two new exchange-traded funds (ETFs) that capture the volatility of the crypto market for both bulls and bears.
Direxion specializes in thematic ETFs and this time they have launched two leveraged vehicles: The Direxion Daily Crypto Industry Bull 2X Shares (LMBO) and the Direxion Daily Crypto Industry Bear 1X Shares (REKT).
For investors, these ETFs offer a unique opportunity to bet on their short-term predictions for the crypto market. But are they worth investing in?
How Do LMBO and REKT Work?
Both of these vehicles track the Solactive Distributed Ledger & Decentralized Payment Tech Index. The goal of this benchmark is to track the performance of the best companies developing and implementing decentralized ledger and payment technologies in the crypto space.
It includes US-listed stocks of companies in various sectors that engage in activities involving blockchain technology, non-fungible tokens (NFTs), decentralized finance (DeFi), and crypto mining.
The company with the highest weight within the index at the moment this is written is Jasmine International PCL, accounting for 37% of the index’s shares. This corporation reportedly invests in telecommunication companies and operates in Thailand exclusively.
Meanwhile, the second and third largest assets within the index are shares of the Rakuten Group and NU Holdings. Other companies included in the benchmark with much lower weights include Robinhood Markets, Intel Corp, Riot Platforms, and PayPal Holdings.
In total, 25 US-listed companies are included in the index. The asset management company relies on an algorithm named ARTIS® to identify potential candidates to be included in this index that are considered promising based on the benchmark’s scope and reach.
Bulls and Bears Can Now Boost Their Results with These Two Leveraged ETFs
The Direxion Daily Crypto Industry Bull 2X Shares (LMBO) is designed for investors who have a bullish outlook on the crypto industry. Its goal is to duplicate the daily gains of the Solactive Distributed Ledger & Decentralized Payment Tech Index before fees and expenses. This leveraged exposure allows investors to amplify their gains from the sector’s upswings.
Meanwhile, the Direxion Daily Crypto Industry Bear 1X Shares (REKT) caters to investors with a bearish outlook on the crypto industry. Its goal is to generate 100% of the inverse daily gains or losses that the Solactive Distributed Ledger & Decentralized Payment Tech Index produces before fees and expenses.
The launch of these two new leveraged vehicles comes at a time when cryptocurrencies and becoming more accessible than ever to mainstream investors amid the recent launch of Bitcoin and Ethereum-linked spot ETFs.
Direxion aims to provide investors with access to leveraged vehicles that they can use to boost their gains depending on their directional predictions for the crypto market.
LMBO and REKT See Low Trading Volumes During Their First Day
LMBO and REKT were listed on the New York Stock Exchange (NYSE) on July 17. Despite their creative and attention-grabbing ticker symbols, their initial trading volumes were relatively modest.
LMBO fell by 1.12% during its debut with a trading volume of approximately $36,000 while REKT saw the value of its shares increase by 0.52 but attracted just $5,000 in trading volume.
These figures suggest a cautious start for the new exchange-traded funds with investors potentially taking their time to assess their strategies and the role that these products might play in their portfolios.
One detail in particular that may be deterring investors from pouring money into this index is the significant weight allocated to Jasmine International, a relatively small company based in Thailand with a market capitalization of less than $700 million.
According to its website, Jasmine is reportedly building “the largest Bitcoin mining farm in Thailand”. Its latest quarterly earnings report indicated that Jasmine generated $19.5 million in total revenues during the first three months of the year and net earnings of $3.7 million.
It is unclear why the index is so heavily invested in this Thailand-based company but the truth is that the performance of the index, given the weight that Jasmine’s shares have, will be heavily influenced by how this one company fares.
More Exotic Crypto-Linked Investments Vehicles Could Proliferate in These Conditions
While LMBO and REKT offer exciting opportunities for traders to bet on the advancement of the crypto industry, it’s worth noting that these are complex financial products primarily designed for sophisticated investors.
Direxion emphasizes that all leveraged and inverse ETFs are intended only for investors with an in-depth understanding of the risks associated with amplifying results by using leverage.
Investors must be familiar with how inverse ETFs work before getting exposed to these products and be aware that there is no guarantee that these products will produce the expected results, especially during periods of high market volatility.
Direxion provides educational resources, including brochures, videos, and online courses, to help investors assess if leveraged ETFs are suitable for their investment strategy.
This year has seen the launch of various crypto-linked ETFs with the blessing of the United States Securities and Exchange Commission (SEC). The latest approved spot ETFs have attracted billions of dollars in capital.
According to data from Farside Investors, Bitcoin spot ETFs have managed to attract $16 billion from investors since they were launched in January. The BlackRock iShares Bitcoin Trust (IBIT) is the largest vehicle by assets under management (AUM) to date with nearly $20 billion.
Meanwhile, Ether spot ETFs are expected to hit the trading floor by next Tuesday as issuers give their prospectuses and filings the finishing touches.
At a time when most analysts are expecting that interest rates will be cut during the third quarter of the year, cryptocurrencies and digital assets will likely continue to experience high demand.
Vehicles such as the new Direxion leveraged ETFs may proliferate in these conditions as investors start to test more exotic alternatives to get exposure to this growing sector.
Direxion Caters to Sophisticated Investors and Speculators Primarily
Direxion was founded in 1997 and specializes in developing products that capture specific trends and themes that investors are pursuing at the time. It focuses on ETFs that augment the performance of single stocks through the use of leverage. To date, they have launched this type of product for Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG) stocks.
Moreover, they offer leveraged products for investors who speculate that top indexes like the S&P 500 and the Nasdaq 100 will drop in the future as well as ETFs for specific industries like artificial intelligence and gold miners. In most cases, they offer products that cater to both bulls and bears.
As of June 30, 2023, Direxion managed approximately $43 billion in assets for investors who rely on these products to either hedge their portfolios or make speculative bets on certain segments of the market.
The introduction of the LMBO and REKT ETFs represents a step forward in expanding the range of alternatives that investors have to get exposure to the crypto sector. Even though these are exotic products that cater primarily to sophisticated players, they can be a good alternative for hedging purposes as well.
All things considered, lay investors should thoroughly research and understand the mechanics of leveraged and inverse ETFs before incorporating them into their investment strategies.