INVESTING
the funds allow more investors to participate and thus increase inflows into the bitcoin market during bullish periods. The funds can also see more outflows during bearish periods. None of this is evil. This is a market-broadening effect, not a risk-amplifying one.
The ETF critics also point to the fact that spot funds come through a small number of custodians, and suggest that this could raise the risk of a meltdown if one custodian falters. Is that true?
The short answer is yes, there could be a failure— of one company’ s operations. If one of the custodians had its bitcoin hacked or stolen, however, that wouldn’ t necessarily increase the volatility of the entire bitcoin market or make the cryptocurrency system itself more fragile. This is a structural risk for institutions, not a threat to a market.
Leveraged and Inverse Bitcoin ETFs
The same could be said for funds that use leverage to amplify gains. Take a bitcoin ETF designed to deliver twice the
Most of the 2x leveraged bitcoin funds use a combination of bitcoin futures( issued by the Chicago Mercantile Exchange), swaps or cash collateral to obtain their exposure. Since these leveraged and inverse ETFs don’ t trade spot bitcoin directly, they aren’ t draining liquidity or manipulating spot prices.
Another important point is that CME bitcoin futures are highly regulated and cash settled as part of a deep, established market used by institutions. A 2x ETF is just another participant in this market. It wouldn’ t cause a system failure. will likely result in a shakeout.
The hoarders— those who are holding on for dear life through the storm( or“ HODLing” as the slang goes)— could experience forced liquidations by creditors and possibly financial impairment. Such behavior could lead bitcoin to its Lehman Brothers moment: Reckless, undisciplined borrowers( and those who financed them) could be wiped out. The resulting panic could lower bitcoin prices even further before an eventual flush-out.
After most crises, the players and faces change. But the market survives. And that will likely be the case with bitcoin.
Misplaced Anger
Again, the recent finger-pointing at ETFs might be misplaced anger. These vehicles cannot borrow money to buy bitcoin, use margin or credit facilities, issue debt or convertible bonds, or pledge bitcoin as collateral. Each share is backed by fully paid bitcoin, minus fees. Spot ETFs consolidate trading volume in regulated markets, which
The hoarders— those who are holding on for dear life through the storm( or“ HODLing” as the slang goes)— could experience forced liquidations by creditors and possibly financial impairment. Such behavior could lead bitcoin to its Lehman Brothers moment: Reckless, undisciplined borrowers( and those who financed them) could be wiped out. The resulting panic could lower bitcoin prices even further before an eventual flush-out.
coin’ s daily gains, daily losses and volatility. All the risks of that strategy are contained within the ETF structure itself, not in the broad bitcoin market— thus a“ 2x” leveraged bitcoin strategy amplifies the risk only for the investors using it.
What about the derivatives the ETFs use?
When a leveraged ETF rebalances its futures exposure each day, it interacts with the derivatives market, not the bitcoin network or spot exchanges. No coins are removed from circulation or added back, and spot market liquidity is unaffected. The final result is that volatility from leveraged ETFs always stays inside the futures market rather than spilling into spot.
Bitcoin‘ Treasury’ Companies
While some of these explanations about the recent decline in crypto markets don’ t add up, there are investing behaviors in the bitcoin space that deserve more scrutiny and perhaps more blame when it comes to looking at the risks to the coin.
In 2020, the CEO of software company MicroStrategy( now called simply“ Strategy”) introduced the idea of hoarding bitcoin on company balance sheets, and copycats soon followed suit. Thus was born the so-called“ bitcoin treasury companies,” businesses that issued billions of dollars in debt and other instruments to accumulate and hold bitcoin on their balance sheets. All of that was fine when bitcoin prices were rising. But as of mid-February, bitcoin prices have fallen 45 % off their peak in 2025.
The bitcoin treasury company predates the launch of U. S.-listed bitcoin ETFs by four years. It might still turn out to be a fantastic experiment, but what bitcoiners have yet to learn is that excessive borrowing does not accelerate bitcoin’ s adoption, maturation or safety. Instead, it inevitably leads to more risk and higher volatility and can improve transparency( though it might also concentrate influence). The price discovery is now happening in a new place, but that doesn’ t fundamentally change bitcoin’ s risk profile.
So it’ s important to remember that bitcoin ETFs are not to blame for increased volatility or price crashes, especially when we have better root causes to look at— like the leveraged hoarders. Advisors should keep these counterarguments in mind when they come across false narratives about bitcoin ETFs.
RON DELEGGE II is the founder of ETFguide. com and author of several books, including Habits of the Investing Greats and Portfolio Architecture: A Handbook for Investors.
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