Inverse ETFs & Crypto
The biggest problem that cryptocurrency experiences is market volatility. While this means that there is money to be made when the price is rising rapidly, which is exactly what we saw towards the end of 2017, there is also a significant amount of money to be lost, which is what most investors experienced after that bull market ran its course. Despite having witnessed an enormous loss in value of most cryptocurrencies, there are ways for investors to take advantage of a decrease in value. In traditional financial markets, multiple hedging options exist and one of the fastest growing one comes in the form of inverse ETFs. In this article, we will explore what inverse ETFs are and why they would be so popular in the crypto market.
What Are Inverse ETFs?
An inverse ETF, for which ETF is an acronym for exchange-traded funds, is a type of offer that is designed to help investors profit from a decline in a market. Aptly called “Short ETFs” or “Bear ETFs”, these assets function similarly to an investor holding a short position in a market or using different investment strategies to keep investments from plummeting during a bearish market. In short, an inverse ETF helps investors to keep their funds protected, even when a market is not performing well.
Why Would They Be So Popular in the Crypto Market?
As we stated earlier, the most problematic aspect of cryptocurrency is volatility. True, there are more than enough success stories of those who make a living off of crypto trading as well as those who invested in the market before the boom. However, not everyone has been this lucky and there are equally the same amount of stories of people who invested quite a bit of their funds in the market only to experience a huge loss in value when the price of crypto plummeted. However, with inverse ETFs designed specifically for the crypto market, investors could have shortened the market without having to borrow a certain amount of crypto or deal with futures and, with the price of the asset going down, they would then have made a profit. Using this model, investors can still make money even when the market isn’t performing as desired, which is why these products can be so popular in the community.
In addition to the benefits that investors will receive from new products like the inverse ETF, the crypto ecosystem also receives benefits such as improved liquidity and better market performance so that it can continue to grow and evolve. Overall, inverse crypto ETFs are desirable products that may appear (and should) be here to stay.
What is the Alternative?
Trakx.io extends the range of available cryptocurrency shorting solutions through Inverse CTIs. These enable to profit from a decline in the value of the underlying benchmark. You can read our article about Inverse CTIs here: https://medium.com/@Trakx.io/how-to-short-the-market-with-inverse-crypto-traded-indices-6604a7fb911b