The US Securities and Exchange Commission approves trading of 3x Bitcoin and Ethereum ETFs

Key insights

The U.S. Securities and Exchange Commission (SEC) has approved six funds with a leverage ratio of 3x, including Bitcoin and Ethereum ETFs, to be listed on the Chicago Options Exchange (Cboe). The registration statement is still waiting to take effect, and a specific launch date has not been announced. Due to the daily leverage reset mechanism, long-term holding returns may deviate from a simple three-fold result.

Bitcoin and Ethereum ETFs, which aim to achieve triple daily returns, have received SEC approval for exchanges listing, but trading cannot begin immediately. The October 2 decision involved changes to the Cboe BZX rules that affected six Volatility Shares funds in the cryptocurrency and commodity markets. However, issuers still must obtain a valid registration statement before investors can purchase these new products through brokers.

The funds approved this time are linked to Bitcoin, Ethereum, gold, silver, crude oil and natural gas. Each product is designed to achieve triple its benchmark daily performance before deducting fees and expenses. This structure amplifies potential gains and losses, while daily resets may change results over longer holding periods.

Bitcoin and Ethereum ETFs await registration clearance

The SEC's decision clears the exchange's proposed listing rules, but separate registration requirements will still have to be met before launch. Volatility Shares still needs to make its Form S-1 registration statement effective. The approvals described in the announcement were not accompanied by an expected start date.

Once these requirements are completed, shares will be traded on Cboe's BZX exchange through brokerage accounts. Investors will buy and sell them in the same way as ordinary stocks. However, its daily leverage target distinguishes its performance from the price movements of the underlying assets. Volatility Shares already offers leveraged cryptocurrency products, including funds designed to double the daily performance of Bitcoin and Ethereum.

The newly approved list will increase this daily goal to three times the respective benchmarks. The decision also includes four commodity funds, in addition to two cryptocurrency products. Futures contracts provide underlying exposure

Futures contracts provide underlying exposure

Bitcoin and Ethereum ETFs will use futures contracts rather than directly holding BTC or ETH. According to relevant instructions, its exposure will include contracts related to CME. These tools link fund performance to futures benchmarks rather than directly owning cryptocurrencies.

Futures contracts establish conditions for buying and selling assets at specified prices on specific future dates. The fund uses these contracts to achieve its daily investment goals. As a result, the goal of its statement focuses on the futures benchmark tracked, rather than every fluctuation in the price of the spot cryptocurrency.

For example, a 2% daily rise in the Bitcoin futures benchmark means the fund's target return is 6%. Conversely, a 2% decline in the benchmark means a target loss of 6%. These two examples describe expected daily results before fees and costs. Similarly, a 1% increase in the benchmark corresponds to a target return of approximately 3%. A 1% decline in the benchmark corresponds to a target loss of approximately 3%.

Therefore, the lever amplifies the exposure in either direction during the same measurement period on the next day.

Daily resets shape returns beyond a single transaction

Bitcoin and Ethereum ETFs reset their leverage daily, making the measurement period the core of their stated goal. Its three-fold goal applies to every day. It does not establish matching multiples for an investor's entire holding period.

After a few trading days, returns could be far from three times the overall volatility of the underlying assets. As prices fluctuate up and down, daily rebalancing and volatility can reduce returns. Therefore, a longer holding period may produce different results than a simple daily example. For investors, the approved products combine trade access to similar stocks with amplified exposure to changes in futures prices.