This Little-Known ETF Is Making Big Moves -- Is It a No-Brainer Buy?

Take a look at the entire universe of exchange-traded funds (ETFs). Among these roughly 3,400 names, you'll find one name popping up at the very top of several recent performance charts.

• This ETF has nearly tripled in three months with a 90-day return of 196%. The runner-up on this list didn't even double, stopping at 82%.
• It has gained 335% in six month, again far ahead of the second-place name with a 280% price increase.
• In the last year, you're looking at a staggering 736% gain for this little-known ETF. The silver-medal ETF from the half-year list snags the same position here with a 439% jump.

Those are some hair-raising results. The ETF in question also left most of the stock market far behind in these three periods, including artificial intelligence (AI) stalwarts Nvidia and Super Micro Computers.

I'm talking about the little-known GraniteShares 2x Long Coinbase Daily ETF (NASDAQ:CONL). No, that's not a household name. It's not even this obscure fund manager's largest ETF.

But the numbers don't lie -- the GraniteShares 2x Coinbase ETF can clearly crush the market every now and then. Is it worth getting to know this strange ETF better, and perhaps invest in it right now?

Let's have a look.

What is the GraniteShares 2x Long Coinbase Daily ETF

As the name implies, I'm looking at a leveraged ETF that generates roughly double the returns of cryptocurrency exchange operator Coinbase (NASDAQ:COIN) shares, calculated in a daily basis. The ETF is nearly perfectly matched to the Coinbase stock's price movement, only amplified by a bag of accounting tricks including futures, options, and stock swaps.

The GraniteShares fund is rather small with just $375 million of assets under management -- all directly related to the Coinbase stock. Its annual fees will remain at 1.15% until the end of 2024, but will more than double to 2.46% per year at that point.

Risky business

And GraniteShares makes it perfectly clear that this is a risky investment.

"There is no guarantee the fund will meet its stated investment objective, according to the ETF's fact sheet. "The Fund should not be expected to provide 2 times the cumulative return of COIN for periods greater than one day."

In other words, the fund is intended for short-term trading rather than long-term investing. The fact sheet also warns that the fees and the effects of magnifying an already volatile stock's price moves may result in losing money when the underlying stock is flat for more than a day. Due to the unpredictable nature of derivatives, "an investor could lose the full principal value of his/her investment within a single day."

That's what the fund managers say in their promotional materials. Fun dinner conversation, right?

They can't all be winners

Coinbase has fared well recently thanks to rising interest in crypto investing. Bitcoin (CRYPTO:BTC) prices have gained 80% in the last 6 months, sending Coinbase stock 163% higher. The leveraged Coinbase ETF has delivered roughly twice that result. Not too shabby, and the dire warnings in the fund manager's documentation have not wiped out investors holding on beyond the recommended single-day holding period.

CONL data by YCharts

But the story doesn't always have a happy ending. GraniteShares also offers a leveraged ETF doubling the results of Tesla (NASDAQ:TSLA), for example. The electric vehicle veteran's stock is down by 16% over the last 6 months. The leveraged ETF has lost 42% over the same period -- more than twice the underlying stock's price cut.

Be careful out there, dear reader

The risks are real. Buying the GraniteShares 2x Long Coinbase ETF today means that you expect Coinbase to continue its majestic rise to reach new all-time highs relatively soon. And it very well might, delivering solid returns to investors in the leveraged ETF. Many experts would argue that the price-boosting effects of last month's Bitcoin halving will be felt over the next year and a half, and that Coinbase will benefit directly from that bullish trend.

But what if this halving cycle isn't like the others? The arrival of Bitcoin spot-price ETFs could throw a spanner in the usual process, changing the crypto sector's long-term returns in unexpected ways. Or the crypto exchange could lose market share as traditional mega-banks take a serious interest in the crypto space. I'm not saying they will, or that Coinbase is doomed if they do, but the risk is well above zero percent. And in that case, you wouldn't want to own a leveraged Coinbase investment that steepens and deepens the financial pain of a headlong crash.

So, if you're considering the GraniteShares 2x Long Coinbase ETF, please approach with caution. This fund is designed for short-term trading and is not suited for long-term investment strategies. Although the recent performance of Coinbase stock might appear enticing, remember that leveraging can amplify losses just as much as gains. As always, ponder whether such a volatile investment aligns with your financial goals and risk tolerance.

I wouldn't call the GraniteShares fund a no-brainer buy today -- far from it.

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Anders Bylund has positions in Bitcoin, Coinbase Global, and Nvidia. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Nvidia, and Tesla. The Motley Fool has a disclosure policy.