The largest exchange traded product designed to track CBOE Volatility Index futures fell nearly 3% on Monday to a new all-time low as investors grow more confident the market won’t be derailed by Europe’s debt crisis or a slowdown in the U.S. economy.

The iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) was down 65.8% heading into Monday’s trade. [ETF Chart of the Day: Volatility-Linked Funds and the VIX]

Despite the exchange traded note’s miserable performance in 2012, it still has a market capitalization of $1.5 billion, according to issuer Barclays. Clearly, there is demand for a market hedge from some nervous investors. [Top ETF Wealth Destroyers]

Perhaps part of the ETN’s size can be explained by the high level of short interest – about 38% according to

VXX and other volatility-linked funds are geared to track VIX futures contracts so they won’t follow the spot price.

“The VXX is down nearly 97% since it was first introduced. The last time the fund announced a reverse split (one-for-four announced back in October 2010), the VXX had traded as low as a nominal level of $12.35, so I expect we may see another split soon,” writes Richard Bloch at SeekingAlpha.

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