Awhile back I remember chatting with @satchmo about the possible future creation of leveraged Bitcoin funds for investors and traders. This was just speculation at the time (it's been a few months) and the conversation took place in the comments on one of his posts. Now it looks like at least one firm is trying to do just that--establish a fund that tracks the movement of bitcoin by 2x.

image and news source: https://www.investing.com/news/cryptocurrency-news/us-company-plans-funds-that-double-bitcoin-price-moves-1069748

So if Bitcoin gains 10% in one day, the 2x leveraged bull (long position) fund would gain 20%. They would also implement an inverse "bear fund" (like a short position) which would gain roughly 20% in a time period when Bitcoin drops 10%. That means if you think Bitcoin is gonna drop, you buy a bit of the bear fund and profit if Bitcoin drops.

These are known as leveraged funds, they're volatile as hell, and I'd recommend staying away from them unless you're a seasoned trader and know what you're doing (if the SEC approves it, which they may not).

Why do I say this?

Back in the day when I was an investorshub junkie (2014-2015) and on-the-side stock trader I've seen newbies and novices get into leveraged funds not fully understanding the risk and lose a lot of their investment (some lost well over half because they kept averaging down). They didn't do their due diligence before throwing their money at something (mistake). I myself have incurred losses on these things (and some gains too) as well so I'm not claiming to be an expert and I don't even mess with these any more.

But back to my main topic of this post...

The name of the company proposing this is Direxion and they already have many leveraged funds that track the price movement of all sorts of things by 2x or 3x. Here's a link to some of the regular and leveraged funds they have--they've got funds that track all sorts of things like stock market indices, groups of gold mining company stocks, commodities such as oil and gas, and the list goes on and on.

http://www.direxioninvestments.com/etfs?utm_source=msn&utm_medium=cpc&utm_campaign=Direxion+Brand&utm_term=direxionshares&utm_content=A#!/

Like I said, these derivatives are very volatile and risky and due to some mathematical facts about how they work (that I won't go into now) the prices of the leveraged funds decay over time so holding them long term isn't a good idea generally. I know a guy who has shorted pairs of them and because of the decay over time he's made a pretty good profit by doing so. He also did complex options strategies that are beyond my realm of knowledge. That's a complicated strategy for most and now I'm getting a little beyond the realm of knowledge of the average new or novice investor so I digress...

Anyone interested in learning more about the types of decay that affect leveraged funds might read these articles that explain it in some detail.

Geometric Decay

https://seekingalpha.com/article/1864191-what-you-need-to-know-about-the-decay-of-leveraged-etfs

Decay due to futures contract rollover

https://spreadcharts.com/understanding-commodity-etf-decay/

If you want to invest in a fund that tracks the price movement of bitcoin instead of the actual currency, you might find one that is NOT LEVERAGED by 2 or 3 times. Bitcoin and altcoins are volatile enough as it is but some experienced traders would love the potential if these funds do end up being approved by the SEC and are created.

I'll be interested to see how this plays out in the coming year as Cryptos become more mainstream and Wall Street tries to capitalize on the general public's interest in them. It's gonna be a wild year for sure so buckle up!

Disclaimer: I cannot stress enough that leveraged funds are extremely volatile and one can lose a LOT of money very quickly. Stay away unless you truly understand these things and are a seasoned day trader. Also, this is not investment advice and is for informational and entertainment purposes only. If you play in any type of market whether it's stock, commodities, derivatives, etc always do your own research first. I am not liable for your losses so please make informed decisions (based on your own research or advice from a financial professional) if you do decide to invest or trade anything that fluctuates in value.