Direxion ETFs Bet for, Against Crypto Stocks

Direxion, which manages more than $45 billion across 90 ETFs, introduced two ETFs Wednesday that give investors the ability to leverage long and bet against the cryptocurrency and blockchain categories.

The Dirextion Daily Crypto Industry Bull 2X Shares ETF (LMBO) offers 200% the daily performance of the Solactive Distributed Ledger & Decentralized Payment Tech Index.

The Direxion Daily Crypto Industry Bear 1X Shares ETF (REKT) offers 100% the inverse of the Solactive index.

The Solactive index, which is rules based and resets quarterly, creates a “derivative trade on the pure play crypto” that is a way to bet on the crypto space without directly owning cryptocurrencies, said Edward Egilinsky, Direxion managing director.

To qualify for the index, companies must be listed on U.S. exchanges and have a market capitalization of at least $500 million and a minimum daily trading volume of at least $5 million. No individual stock can represent more than 7.5% of the index.

Betting on Crypto Companies

The Solactive index construction uses artificial intelligence to screen publicly available information through financial news, business profiles, public filings and company publications.

Egilinsky said the algorithm then ranks companies according to the frequency of company references related to specific key words.

Index companies are only eligible for inclusion if they generate at least 50% of their revenue from at least one of the four following business categories: blockchain technology, NFT and tokenization, decentralized payment technology and digital asset mining hardware.

“I believe this is the first crypto industry leveraged product out there,” Egilinsky said of LMBO.

The new ETFs are designed to tap into industries represented by “the fastest growing companies in the world, now representing an almost $3 trillion asset class,” he said.

Asked about the 200% upside leverage on LMBO, while not leveraging the downside beyond 100% of REKT, Egilinsky said the downside leverage limit was based on perceived market demand and the ETF management capabilities.

“We intentionally kept it at one-time the inverse because we wanted to make sure we could provide that exposure,” he said. “We think these are going to be heavily traded ETFs.”