SEC Approves 3x Leveraged Bitcoin and Ether ETFs

The SEC approved a Cboe BZX rule change on Oct. 2 that permits the issuance of ETFs designed to deliver three times the daily return of bitcoin and ether. These products, issued by Volatility Shares, will track regulated futures rather than holding the underlying tokens.

While this approval represents a milestone for crypto-linked products in the U.S., the funds are not yet available for trading. The issuer still requires the SEC to declare its registration statement effective, and no timeline for this has been set.

Market analysts have cautioned that these leveraged products are intended for short-term trading rather than long-term holding. Because the funds must rebalance daily to maintain their 3x leverage, they are susceptible to volatility decay, a process where price fluctuations in a sideways market can lead to significant capital erosion.

Volatility Shares noted in its preliminary prospectus that the potential for this decay increases alongside the volatility of the underlying benchmark. The filing also warned that these investments are speculative and carry the risk of total loss.

In addition to rebalancing risks, the funds face costs associated with rolling futures contracts. As contracts approach expiration, the fund must sell them and purchase later-dated ones, which can create a drag on performance over time.

The approval brings crypto products closer in line with traditional assets, offering new tools for speculators. However, market participants continue to view spot ETFs as the preferred option for long-term or risk-averse holders.