1/4. At the weekly level of the Kline, the neckline of #BTC has fallen below. Give up illusions and wait for the bottom with peace of mind;

2/4. At the daily level of Kline, #BTC has fallen below $28k, which is out of the bottom line of the box. Don't buy in the downward trend;

3/4. In the medium and long term, $20k cannot be guarded. In the short term, this price can stay for a short time, but it is not the bottom of #BTC.

4/4. In the medium and long term, bottom fishing should be considered at $14k. Don't think I'm being an alarmist. I mentioned the importance of $28k at $40k. Now #BTC is below $20k, so $14k is waiting.

About ETH

1/3. $1700 is a triple compound top of #ETH, breaking below means we should abandon fantasy and face reality;

2/3. #ETH is now in the stage of free landing. DO NOT buy easily;

3/3. From a medium to long-term perspective, #ETH could reach $700. From a short-term perspective, it will take another acceleration to find a short-term bottom, but the space is unclear, the time will be no more than 2 days.

Recently, the crypto market has been facing a unilateral downtrend. This is reflected in a decrease in total market value. According to CoinGecko's statistics, the total market value of the crypto market decreased from about $2310.4 billion at the beginning of the year (January 1) to about $1792.5 billion at present (February 25), dropped about 22%. On the other hand, it also shows a decline in volatility. The daily average amplitude of BTC, which accounts for the highest market cap in the same period, is about 4.6%, lower than the daily average of 6.72% last year, and the trend is clear.

Due to this market situation, there are studies that pointed out ETF investment, especially leveraged ETF, may become a pathway for investors to enjoy high yields. In the traditional financial market, ETF refers to Exchange-traded funds. Investors can not only purchase or redeem fund shares from the fund management company in real-time but also buy and sell shares according to the market price in the secondary market, like closed-end funds. There is an arbitrage opportunity between the market price and the net value of the fund. After the second half of 2019, ETF entered the crypto market and has evolved into three main types: index funds launched by large institutions, leveraged index funds launched by exchanges, and leveraged tokens. Its trading mode is similar to traditional ETFs. So, can ETFs resist the cold winter of the crypto market? This article will further analyze the differences between these ETFs, the current transaction scale, and the theoretical expected return for reference.

01

More Than 639 Types Of ETF Products,

The Daily Trading Volume On The ETF Trading Platform Is About $360 Million

At present, the entities of ETF products that launched in the crypto market are mainly large digital asset management companies and exchanges. The former mainly includes Grayscale, Purpose, and 3iQ, and the latter mainly includes FTX, MEXC, and Binance. The types of ETFs issued by different entities are also different. ETFs issued by institutions are often closer to ETF index funds of traditional finance. For example, Bitcoin ETFs issued by Grayscale depend on CoinDesk Bitcoin Price Index, and 3iQ depends on MVIS CryptoCompare Institutional Index.

The ETF issued by the exchanges is a perpetual leveraged product that amplifies the rise and fall of the underlying assets by multiplication. According to its realization method, it can be divided into leveraged ETF Index Fund issued by MEXC and leveraged ETF tokens issued by Binance and FTX. The biggest difference between the two is whether to issue corresponding tokens on the chain. Moreover, the trading method of each ETF is also different. Institutional ETF is usually traded in a closed-end mode. In this trading mode, investors can directly purchase but not redeem the ETFs. They can only withdraw from the trade via the secondary market. Exchange ETF is usually in an open mode, with investors buying and selling directly.

There are 639 types of ETFs available for trading in the market so far. Comparatively, the assets variations and ETF products in Institutional ETF are limited. Grayscale, which has the most variety of products, has issued a total of 16 ETFs involving 24 assets that included BTC, ETF, AAVE, ADA, LINK, COMP, SOL, etc.; 3iQ has issued a total of 6 ETFs involving 3 assets that included BTC, ETF, and LTC; while Purpose has issued a total of 4 ETF products involving 2 assets that included BTC and ETH.

ETF of the exchanges involves more types of assets and more tradable ETF products. MEXC, which has the largest number of products, has issued 386 ETFs and involves 172 assets. It covers almost all sectors in crypto such as Ethereum, Polkadot, Solana, Avalanche protocol, Fantom, NFT, Metaverse, GameFi, DeFi, Layer2, DAO, etc. FTX has issued a total of 187 ETFs involving 47 assets, and Binance has issued 40 ETFs involving 20 assets as well.

Currently, the market size of the mainstream ETF is developing actively. According to the official data from different major institutions, the scale of ETFs managed by the top 3 organizations is reaching $36.9 billion. Grayscale is leading with a percentage of more than 90, while both Purpose and 3iQ have yet to exceed $2 billion. According to the statistics of CoinGecko, ETF issued by FTX, MEXC, and Binance have reached a daily total trading volume of $360 million. MEXC has the highest trading volume among the others with $194 million and a percentage of 54%.

Although the market size of ETF issued by the exchange is still far smaller than that of large institutions, the growth of ETF of the exchange is very fast based on the trends. According to the official data of major institutions and Glassnode, the asset management scale of Grayscale and 3iQ has decreased by 25% and 21%, respectively, in the last half of the year. In fact, since the OTC price of Grayscale remained at the negative yield level last year, the development of institutional ETFs began to slow down, and the scale of asset management continued to decline. At present, even compliant institutional ETFs are difficult to continue the myth of Grayscale. While the institutional ETF is weak, the exchange ETF has been developing well. According to CoinGecko's data, compared to the beginning of 2020 when ETF was just introduced into the crypto market, MEXC's ETF daily trading volume has increased by 5015%, and FTX has also increased by 492% in the past two years. The increasing trading volume means that the market is gradually maturing and has more liquidity, which is positive significance to the development of ETF.

02

Institutional ETF Continues To Have Negative OTC Premiums,

MEXC Average Highest Theoretical Return Over 518%

From the perspective of returns, the average OTC premium rate of ETFs issued by all institutions has experienced a process of first rising and then falling. In 2020, when institutional ETFs were launched, the average monthly OTC yield rate remained above 10%, reaching a maximum of 23.51%, and the gain was very considerable. After entering 2021, the average OTC yield rate began to turn from positive to negative, all the way down to the current rate of -22.63%. However, it is worth noting that the overall average yield rate is greatly affected by the negative premium of GBTC issued by Grayscale, while the recent OTC premium rate of other ETFs has rebounded, such as QBTC.U current OTC premium rate is about -3.33%. Overall, the recent yield rate of institutional ETFs is not good. Except for those early investors who can still get excess returns, the profit opportunities of new investors are not as good as before.

However, ETFs issued by the exchanges have different ups and downs. Taking the 10 ETFs from each exchange with the highest daily trading volume as the observation sample, as of the closing on February 23, the net value of 10 among 30 ETFs has a net gain value of more than 0 in this year, including 4 from Binance, 3 from FTX and MEXC respectively. The highest net value gain this year is the ETH 5x long ETF (ETH5L/USDT) issued by MEXC, reaching 127.20%. Other ETFs with higher gain included the ETF issued by Binance, up to 4x short ETF (ETHDOWN/USDT), and BTC 5x long ETF (BTC5L/USDT) issued by MEXC, with both exceeding 50%.

From the perspective of historical yield rate, the average [1] highest theoretical net value of the 10 ETFs with the highest trading volume on MEXC has the highest gain of about 518.40%, and the average lowest theoretical net value decreased the least is about -96.40%, which is the best average yield among the 3 ETF trading products. The average highest theoretical net value of the 10 ETFs with the highest trading volume on FTX increased by only 182.49%, and the average lowest theoretical net value decreased by about -100%; The average highest theoretical net value of the 10 ETFs with the highest trading volume on Binance increased the lowest, about 68.80%, and the average lowest theoretical net value decreased by about - 99.94%. The average yield performance of the two is close.

Generally, the performance of leveraged ETF will be better than the notional leverage multiple in the trending market, i.e., the cumulative increase of ETF in the same direction as the change of the underlying spot price will exceed a certain multiple of the underlying yield, while the cumulative decrease of ETF in the opposite direction will be less than a certain multiple of the underlying yield rate.

Recently, the crypto market has been facing a unilateral downtrend due to multiple external factors. Its obvious feature is that the cryptocurrency price is declining, accompanied by a decline in the maximum daily amplitude. Taking the cryptocurrencies that market cap ranked 1-10, 45-54, and 90-100 on CoinMarketCap on February 23 as samples, the maximum daily average amplitude of each month in the last half-year fell from 10.24% to 7.32%, with an obvious downward trend based on the statistics. Over the same period, the total market cap of the cryptocurrency dropped from $214.53 billion to $171.56 billion, a decrease of 20%, and the downward trend is also obvious. In such a market situation, leveraged ETF may become an alternative for investors to gain excess returns.

03

Leveraged ETF Risk Is More Controllable,

But It Is Not Suitable for Long-Term Holding

ETFs issued by exchanges have certain advantages over other investment products. First of all, these ETFs are open-ended products. Investors can buy and sell freely, and their liquidity is better than that of closed-end ETF funds issued by most institutions.

Secondly, these ETFs are leveraged products, so their yield will be affected by leverage ratio, i.e., if the spot price of the corresponding subject rises or falls by x%, the net value of the corresponding n-times leveraged ETF products will rise or fall by nx%. At present, the theoretical leverage ratio of ETFs launched by the 3 exchanges ranges from 2x to 5x. Taking MEXC as an example, 342 out of the 386 ETFs have 3x leverage, the other 18 have 4x leverage and 5x leverage, and only 8 have 2x leverage. However, this is the notional leverage ratio, and the actual leverage ratio will be affected by the rebalancing mechanism.

In order to control risks, major exchanges will establish their own rebalancing mechanism. Similarly, taking MEXC as an example, its rebalancing mechanism includes periodic rebalancing and non-periodic rebalancing. Periodic rebalancing is essentially an operation to maintain the leverage ratio of ETF. Non-periodic rebalancing refers to the temporary adjustment when the price of the underlying asset rises or falls by more than a certain range. The balance mechanism is achieved mainly by the exchange's risk hedging on multiple other derivatives platforms. Due to the existence of the rebalancing mechanism and the compound interest investment mechanism, i.e., the daily profit part is automatically transferred to the position, which makes ETF has the advantages of low leverage and no liquidation compared to futures, and the advantages of expanding yield compared to spot, especially in the unilateral uptrend. 

In addition, leveraged ETF does not require margin nor requires a liquidation price, so it has a higher capital utilization rate than futures. Take BTC3L/USDT issued by MEXC as an example. When opening leveraged ETF, users do not need to occupy part of their positions as margin to raise or lower liquidation price. 

Overall, the risk of leveraged ETF is more controllable. However, it should still be noted that leveraged ETF tracks the daily return of the underlying assets. Therefore, it does not track the cumulative gain or loss over multiple days, and it is not suitable for long-term holding. Long-term holding may cause principal wear and tear due to repeated ups and downs in the market for many days and may also bear additional wear and tear costs such as daily capital cost and position rebalancing. In addition, investors should pay attention to the net price when trading leveraged ETFs. Due to the fluctuation of market sentiment, the market trading price may deviate from the net value in a certain period of time, resulting in a certain premium. For investors, they should choose the opportunity to trade and pay attention to the trading price that it should not deviate too much from the net value.

Data Description:

[1] Due to the large differences in sample data, this paper uses the median of the average highest/lowest theoretical net value to represent the average level.