Question regarding x3 long/short tokens

[Priesten]

So I recently learned about the existence and function of x3 long/short tokens, for example BTCBULL/BTCBEAR, etc.
I am not very well versed in economics and dont know if this concept is also applied in places outside of the bitcoin world, so forgive me if I seem too skeptic but to be frank the math seems to me to be a bit of a scam.

They are supposed to be a daily triple the increase or decrease of the corresponding token but I have issues accepting that this triple is additive and not multiplicative. This implies that all such tokens are bound to drastically lose value over time.

The fact that it is additive means that if BTC had a 16.667% decrease one day the x3 long would see a 50% decrease which cuts it in half. To get that back BTC would have to see an increase in 33% (tripled to 100%) because you would have to double that 50% to bump it back to 100%.

This means that all losses are exponentially bigger than the gains, and even if BTC only see 1-3% daily increase or decrease, all these tokens will gradually lose value and lose it faster the harder BTC moves.

What am I missing here?

[odolvlobo]

I don't know the specifics for the leveraged tokens, but the math is correct in general. If an asset's price drops by 50%, it must rise by 100% in order to return to the original price.

[wwzsocki]

...What am I missing here?

Nothing, you are right the % is different as 3x and this is exactly how these tokens are designed to work.

You should educate yourself first a little more before start trading any asset to at least understand his basic functioning like performance in this case.

...over longer time periods leveraged tokens will perform differently than a static 3x position.

For instance, say that ETH starts at $200, then goes to $210 during day 1, and then to $220 during day 2.  ETH increased 10% (220/200 - 1), so a 3x leveraged ETH position would have increased 30%.  But ETHBULL instead increased 15% and then 14.3%.  On day 1 ETHBULL increased the same 15%.  Then it rebalanced, buying more ETH; and on day 2 it increased 14.3% of its new, higher price, whereas a 3x long position would have just increased another 15% of the original $200 ETH price.  So during this 2-day stretch, the 3x position is up 15% + 15% = 30%, but ETHBULL is up 15% from the original price, plus 14.3% of the new price--so it's actually up 31.4%.

This difference comes because the compounded increase on a new price is different from moving up 30% from the original price.  If you move up twice, the second 14.3% move is on a new, higher price--and so it's actually a 16.4% increase on the original, lower price.  In order words, your gains compound with leveraged tokens...

https://help.ftx.com/hc/en-us/articles/360032509552

All needed info about these type of tokens provided by Binance: Binance Lists FTX Leveraged Tokens: BULL, BEAR, ETHBULL & ETHBEAR

Additionally, here another really in deep explanation: Leveraged Token Walkthrough

PS
I like to use these tokens to hedge my positions but not only  .

[Priesten]

Thank you very much for the thorough answer, I appreciate it very much.
However, I would like to put more emphasis on why I feel like this is a kind of scam and why people are ok with these coins existing.
Reason why is because I really like the idea of a high risk version of a coin that reflects the moves of another coin more rapidly, but I cant shake the thought that these coins are not meant for anything than take the money of the people who invest in them. In other words there is no merit in buying them.
If I bought regular BTC and predicted well I would expect profits reflecting my prediction but these coins will all inevitably and rapidly lose value so whats the point?
This isn’t 10% more profit for 10% more risk rather 10% more profit for 50% more the risk.
Allow me to elaborate using two examples.

There was a period in between January 22nd and February 29th where BTC was at roughly 8700USD, went up for quite a bit and then back to the same 8700USD. If I would have gone for
BTC during this time, no gains but no loss so no big deal. However the x3 Long token went from being 12000USD to 9500USD. Not only that, but the x3 Short token (the opposite of a long token so it goes up when btc goes down and vice versa) ALSO went down from something like 24USD to 21USD. Both coins down.
Over something like a month interval, these coins both lost about 20% value. I see no reason why both coins wouldnt rapidly lose value each month in a similar fashion. That doesn’t sound like a good investment option whatsoever.

You might say “well these are good for more short term solutions only (if you predict accurately) but even then I am skeptical. Taking the x10 Long/x10 short tokens as an example, there used to be x10 tokens that as far as I know both lost all their value by now.
If BTC lost 9% value one day only, the x10 long token would lose 90% of its value. Even if BTC increased then in 10% for 3 days in a row, (increasing by 100% 3 times) that would be an increase in x8 times the value which would still not cover that one loss of 90%!.
So basically if BTC went down 9% one day and then 10% up for 3 days in a row normally youd think “wow btc is up like 20% so my x10 long token must be doing great” and then you check it and its actually lower than it was before even though BTC is up a lot.

What would then be the merit in having these coins?