LeverageShares offers exposure to Kraken with 2x long ETF filing

LeverageShares, a European issuer known for single-stock and leveraged exchange-traded products, has filed to launch a 2x long ETF tracking the daily performance of the cryptocurrency exchange Kraken. 

According to Bloomberg senior ETF analyst Eric Balchunas, the submission is the first attempt to create a leveraged product tied directly to a private cryptocurrency exchange. The proposed ETF could provide investors with twice the daily price movement of Kraken, which recently filed for a US IPO confidentially.

“LeverageShares just filed for a 2x Long Kraken ETF… which I believe isn’t even IPO-ing until next year. What a country,” Balchunas posted on X late Thursday, sharing a snapshot of the prospectus.

Kraken ETF: How will a 2x long leverage ETF work?

Leveraged ETFs like the proposed Kraken product are meant to amplify the daily returns of an underlying asset, although the crypto exchange has no native token and is yet to be publicly listed. 

Taking some insight from LeverageShares’ existing 2X Long Adobe ETF, the investment vehicle delivers 200% of the daily performance of Adobe’s stock. The traded fund invests at least 80% of its net assets in financial instruments to provide 200% daily exposure to Adobe stock. 

The fund enters into swap agreements with financial institutions to exchange returns, calculated against a notional amount of the underlying shares. 

Investors holding the fund for periods longer than a day may experience returns that differ substantially from the expected 2x performance. A significant price drop in Adobe stock, for instance, could result in total loss of principal within a single day.

Unlike publicly traded stocks, Kraken is a privately held company, meaning it does not have publicly traded shares. Single-stock leveraged ETFs use exchange-traded securities for daily pricing, so the Kraken product would likely mirror the performance of derivatives or indices on the exchange’s market activity, if it launches before the company starts publicly trading.

In practice, the mechanics may resemble leveraged cryptocurrency ETFs, where the underlying asset is a basket of crypto tokens or derivative contracts rather than a publicly listed stock.

Kraken IPO could come soon

As Cryptopolitan reported on Wednesday, Kraken revealed it confidentially filed a draft registration statement on Form S-1 with the US Securities and Exchange Commission. 

The filing relates to a potential IPO of the exchange’s common stock, but details on the number of shares to be offered and the price range for the offering have not yet been disclosed. Kraken said the IPO is expected to take place after the SEC completes its review and will depend on market conditions, among other factors.

Last Tuesday, Kraken secured $800 million in new funding, including a $200 million investment from Citadel Securities. 

The funding round was structured in two parts, with the primary tranche led by Jane Street, DRW Venture Capital, HSG, Oppenheimer Alternative Investment Management, and Tribe Capital. A follow-on investment of $200 million came from Citadel Securities to take Kraken’s valuation to $20 billion.

“Our focus has always been to create a platform where anyone can trade any asset, anytime, anywhere,” Kraken’s co-CEO Arjun Sethi said in a press briefing.

LeverageShares’ track record of 2x long ETFs

LeverageShares was founded in 2017 and has grown into Europe’s largest issuer of single-stock ETPs. The firm has launched over 180 products in leveraged and unleveraged exposure to stocks, ETFs, and commodities.

In September, LeverageShares announced the launch of 19 new ETPs on the London Stock Exchange. The expansion included 3x leveraged products tied to Robinhood (HOOD), Hims & Hers (HIMS), and UnitedHealth (UNH), and leveraged and inverse exposure to global technology firms like Intel, Broadcom, and ASML.

According to the firm’s website, LeverageShares launched several single-stock, index, basket, and white-label ETPs. Index products include 5x long and short FTSE 100 and FTSE MIB ETPs, while Basket ETPs listed in the September lineup had a 3x long FAANG product. 

Single-stock products cover several companies in healthcare, tech, defense, and semiconductor manufacturing, featuring 3x long UnitedHealth, 3x long Intel, 3x long Broadcom, and corresponding inverse or short products. 

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