SEC Clears the Way for 3x Leveraged Bitcoin and Ether ETPs

On October 2, the SEC approved an amendment to the Cboe BZX listing rules for six Volatility Shares products, including a 3x leveraged Bitcoin ETP and a 3x leveraged Ether ETP. These funds aim to triple the daily performance of their reference asset, before fees. However, their launch still depends on a final regulatory step.

Six ETPs receive SEC green light

The financial products market linked to cryptos continues to evolve. However, spot Bitcoin ETFs have just recorded their first outflow after nine days of inflows, despite $3.1 billion raised during that period.

In this context, the SEC approved on October 2 an amendment to the Cboe BZX listing rules. This decision concerns six products from the VS Trust, linked to Bitcoin, Ether, gold, silver, crude oil, and natural gas.

Cboe BZX filed its application on August 10, before publishing it for comments on August 19. Since these leveraged products do not follow the usual listing procedure for commodity trusts, the SEC reviewed each file separately.

A 3x leverage that amplifies daily fluctuations

Specifically, each fund seeks to replicate three times the daily performance of its reference asset. To achieve this, it mainly uses futures contracts, supplemented by cash, and adjusts its exposure daily.

Thus, a daily increase of 1% can generate a 3% gain before fees. Conversely, a 1% drop can result in a 3% loss.

However, this objective does not apply over multiple days. Indeed, the sequence of daily variations can cause the fund’s cumulative performance to diverge from three times that of its underlying. FINRA notably warns about this risk.

Moreover, the renewal of futures contracts can impact results. If the closest expirations are unavailable, funds may resort to longer-dated contracts, other listed products, or options. Volatility Shares already offers comparable strategies, notably leveraged funds featured on its official website.

A launch still subject to a final step

Despite the SEC green light, investors cannot yet trade these six products. The authority approved the platform’s listing rules, but the issuer must still obtain the effectiveness of its registration. This step will determine the launch date.

Furthermore, these ETPs are not covered by the Investment Company Act of 1940, the regulatory framework for traditional investment funds. They remain subject to the rules applicable to their structure and related assets.

Finally, their introduction fits into the expansion of listed crypto products. However, not all succeed equally, as shown by XRP ETFs turning red in early October.

The next step will therefore be the effective registration of the six funds. Then, investment flows will measure the market interest for these products, in a context marked by record gold and continued demand for Bitcoin ETFs.