This short ETF gains as it benefits from the crypto turmoil following FTX’s decline

A recently launched exchange-traded fund has benefited from the turmoil in the cryptocurrency industry, rising more than 20% since its launch in September.

Daily Short Defiance Digitizing the Economy ETF IBIT,
-0.86%,
which is a bet against ETF Amplify Transformational Data Sharing BLOK,
+1.18%,
is up nearly 21% since it began trading on Sept. 8, according to FactSet data through Monday.

The Amplify ETF, which seeks to identify companies focused on transforming and growing the blockchain and cryptocurrency markets, has fallen so far in 2022. It was 60.1% this year through Monday, according to FactSet data.

Defiance created the short ETF with the idea that the crypto industry would suffer greatly if an event such as an exchange business ran into trouble, Sylvia Jablonski, managing director and chief investment officer of Defiance ETF, said in a telephone interview. .

“We never imagined it would be on FTX,” she said. “FTX was supposed to be this kind of stable white knight in the crypto industry.”

FTX, the crypto exchange founded by its former CEO Sam Bankman-Fried, filed for bankruptcy protection on November 11. businesses can also fail.

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John Ray, III, FTX’s new CEO, filed a statement last week in US bankruptcy court assessing the company’s collapse, saying he was unable to create a list of FTX’s top 50 creditors including customers , among other discoveries.

View: ‘This situation is unprecedented’: 10 crazy things detailed in FTX’s bankruptcy filing

Defiance viewed the Amplify fund as a good representation of companies related to blockchain technology, digital assets and the crypto industry, Jablonski said, “so we shorted that ETF.”

At the end of October, the top 10 holdings of the actively managed Amplify Transformational Sharing ETF included MicroStrategy Inc . MSTR,
+4.80%,
International Business Machines Corp., Accenture Plc, SBI Holdings Inc., Overstock.com Inc., GMO Internet Group, CME Group Inc., Coinbase Global Inc. COINS,
+3.27%,
Silvergate Capital Corp. IF,
+3.09%,
Marathon Digital Holdings Inc. MARA,
+3.39%,
according to the fund’s November report.

Other companies held by the ETF last month included Block Inc. SQ,
+0.02%,
Riot Blockchain Inc. RIOT,
-1.01%,
Digital Garage Inc., Hive Blockchain Technologies, Galaxy Digital Holdings Ltd., Robinhood Markets Inc. HOOD,
+1.30%
and Roblox Corp, the report said.

Defiance expects that in the short term, many companies connected to the crypto ecosystem will suffer from the collapse of FTX, according to Jablonski. “A lot of dominoes haven’t fallen yet,” she said.

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The Defiance Daily Short Digitizing the Economy ETF is designed for investors who are either crypto bullish or bullish but want to hedge against the current environment, according to Jablonski. The fund provides daily inverse exposure to the Amplify Transformational Sharing Data ETF.

While some investors may seek “permanent protection” for their long exposure to crypto, traders should regularly review their outlook on the industry, she said. “With contra funds, you still want investors to make that decision on a regular basis,” Jablonski said, because “they rebalance every day.”

On the long side of crypto, Defiance offers an ETF that provides exposure to blockchain-related stocks, digital assets and non-fungible token-related technologies, commonly referred to as NFTs, she said. Defiance Digital Revolution NFTZ ETF,
+0.30%,
which began in December, has fallen about 73% this year through Monday, according to FactSet data.

While Jablonski expects “billions of dollars in losses” in the crypto “ecosystem” to come in the near term, she also believes that blockchain technology and some digital assets, such as bitcoin, will survive the turmoil.

Meanwhile, the ProShares Bitcoin ETF BITO Strategy,
+2.19%,
which invests in bitcoin futures, is down 66.8% this year through Monday, according to FactSet data. ProShares also offers investors a way to bet against cryptocurrency, with the ProShares ETF BITI Bitcoin Short Strategy.
-2.17%.

Crypto is not “dead,” Jablonski said. “This is a wake-up call for the industry.”

Some investors and traders who previously “scoffed” at the notion of regulation as going against the spirit of “peer-to-peer cooperation” are now “catching on” to the idea that it could be “very beneficial” to growing the industry, she says.

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