After several months of restructuring, the crypto market came back to 2T USD in March. Numerous data indicate that the market is bounced back, the bottom of the market is stabilizing, crypto market is ushering in a new round. In the financial field crypto market has been hotly debated all over the world in the past few years, this market with blockchain technology as an "engine" independent of the traditional financial system is profoundly affecting the future trend of technology finance.
In essence, the development process of crypto finance is an alternative innovation process to traditional finance.
In the early days, the exchange only provided simple spot trading services, and the service was simple. However, investment targets increased, such as contracts, leveraged ETF, and options trading due to the continuous increase in market demand . Those services meet the diverse needs of users. The leveraged ETF should be the biggest innovation.
Leveraged ETF almost combined all the features of spot and contracts (leverage returns of contracts, bi-directional, no guarantee deposit, and never suffer margin closeout), leveraged ETF track the rise and fall of a given target asset. The range is about three or five times the market of the underlying asset. Unlike traditional leveraged trading, users do not need to pay any guarantee fee when trading leveraged ETF and can achieve the purpose of leveraged trading by simply buying or selling tokens. Each leveraged ETF product is backed by a contract position, which is managed by the platform fund manager. This allows users to easily build their own constant leverage portfolios without understand the specific mechanics.
Advantages of ETF over Spot
Traditional spot only supports one-way trading without leverage, so there is no profit comparability with ETF. The only difference between ETF and traditional tokens is that ETF come with leverage properties, which similar to leveraged tokens, it can track a specific times of the target’s daily return (e.g. 3 times), which refer to the underlying asset (e.g. BTC).
If the BTC price rises by 1%, the net value of the corresponding 3x leveraged ETF product will increase by 3%; the net value of the corresponding -3x product will decrease by -3%.
If the price of BTC falls by 1%, the net value of the corresponding 3x leveraged ETF product will decrease by 3%, and the corresponding net value of the -3x product will increase by 3%
Compared to spot, ETFs can be traded in both directions, buying long and buying short can be profitable under the premise of buying in the right direction. Another point is that leveraged ETF have higher asset utilization rate, and users only need to establish a currency position to trade without any additional margin.
In the real world, ETF can gain more profits than the literal leverage factor! Let's take ZIL on Hotbit as an example. In the spot trading zone, ZIL has risen from a minimum of 0.04USDT to 0.22USDT in the past seven days, increased 5.5 times.
In the ETF trading zone, ZIL1D5L on Hotbit rose from 0.22 to 67.12, been increased 304 times!
"If you bought 1000U spot a week ago, the maximum profit was 5500u; if you bought 1000U ETF five times a week ago, the maximum profit was 304000u; the difference between those two is 55 times, not literally 5 times."
There is a huge gap of 55 times between ETF and spot returns, which shows the gap between different investment varieties. Leveraged ETF use the least capital to obtain the greatest returns, which is the significant advantage of ETF!
Advantages of ETF V.S Contracts
Leveraged ETF do not require margin and do not closeout, it can be traded in both directions and have leveraged returns like contracts. ETF have the advantages of perpetual contracts while avoiding the risky design of contracts.
We have explained the huge gap between ETF returns and spot returns, so what about the different return between ETF and contracts?
Taking ZIL contract trading pairs on other exchanges as an example, the increase in the last seven days is similar to the spot line, with a maximum increase of 4.8 times.
"If you bought a 1000U 5 times long contract a week ago and the contract price rose from a low of 0.047U to high of 0.23U, you can get maximum contract income of 24468U, but there is 12.4 times difference from ZIL1D5L,"
The biggest feature of ZIL1D5L is that you can re-invest the profit part into your position. In addition to changing the anchor price for each rebalancing, we will re-divide your profit in the product into the corresponding position again, assuming you buy 1000U For ZIL1D5L, your profit is 300U, when you rebalance for the first time, then your position will become 1300U after rebalancing, but the same contract position is still 1000U at this time. Your ZIL1D5L will make a profit of 1300*5u, while the contract can only make a profit of 1000*5u.
Therefore, it is obvious that when a currency is in a unilateral market, the profit of ETF products will be higher than the contract products with the same position. As the unilateral market continues, this gap will open up exponentially. If ZIL's surge continues for a few more days, the profit gap between ETF products and contract products will soon widen to more than 100 times, instead of the 12.7 times mentioned above.
As recovery of the market and capital flows in again, the cryptocurrency market will usher in a new round of surge. Currently, ETFs are the main business in many exchanges, but due to the position of their ETF products, they cannot be compared with some professional ETF exchanges in terms of service experience. Hotbit has deeply cultivated the ETF market in recent years, and its ETF product categories have reached hundreds, providing a wide range of ETF product services to users in more than 210 countries and regions around the world. Especially in the construction of the ETF market, Hotbit is sparing effort to exert its power to provide users with more high-quality ETF products to meet the trading needs of the majority of users!
Based on the lower transaction costs of ETFs, it is becoming more and more popular among users and has obvious advantages over other financial products in terms of improving the utilization of users' funds and expanding leverage gains. It is foreseeable that as the crypto ETF market continues to develop, it will become one of the mainstream tracks in the future!