The U.S. SEC approves 3 times crypto ETF, breaking the previous 2 times leverage limit

U.S. traders are about to receive triple leverage of Bitcoin and Ethereum products

As the U.S. Securities and Exchange Commission (SEC) approves a rule change for the Chicago Options Exchange (Cboe BZX) to cover six volatility share funds, U.S. traders will receive triple leverage of Bitcoin and Ethereum products. This move pushes regulated leveraged cryptocurrency products to a higher level than twice the products currently on the market. The SEC approved the proposal on October 2, involving three triple leverage Bitcoin ETFs, three triple leverage Ethereum ETFs, three triple leverage gold ETFs, three triple leverage silver ETFs, three triple leverage crude oil ETFs and three triple leverage natural gas ETFs.

Each product seeks to achieve a return of three times the daily performance of its benchmark through futures contracts, rather than directly holding the underlying commodity or cryptocurrency. The approval completes the exchange listing steps previously reported by Cboe when it first applied for the listing of the six triple leverage products in August. Currently, these funds have not yet started trading and still need to complete the registration process before the official issuance of shares.

How do triple leverage Bitcoin and Ethereum products work?

Bitcoin products will mainly track the three-fold target of Bitcoin's daily performance through a combination of first-month and second-month bitcoin futures traded on the Chicago Mercantile Exchange (CME). Ethereum products adopt a similar structure. Neither fund directly holds Bitcoin or Ethereum. The product will maintain futures exposure while retaining cash and cash equivalents as collateral and margin. This difference is crucial because investors don't receive three times the return of Bitcoin or Ethereum at any time during the period they hold the fund. The target is for a single trading day only, after which the portfolio will be rebalanced to restore the required level of leverage. Therefore, if Bitcoin rises by 5% on a certain trading day, the target return rate before deducting fees and tracking errors is about 15%; if Bitcoin falls by 5%, the target loss is also about 15%.

This structure represents a further expansion of leveraged instruments within traditional brokerage accounts. Recent analysis shows that a similar dynamic mechanism exists in the double leverage ETF linked to Bitcoin holder Strive, which means that daily resets mean that over multiple trading days, the actual return may differ significantly from the nominal leverage multiple.

Investor Highlights

The key concept in "3x" is "daily". These products are designed to amplify one-day fluctuations rather than provide exactly triple the return on Bitcoin or Ethereum in a week, month or year.

Why is the Triple Fund still losing money even if Bitcoin finally rises?

The daily compound interest effect brings significant risks. The registration documents of the Volatility Share Fund warn that for a holding period of more than one day, the return may deviate significantly from three times the cumulative return on the underlying asset, or even in the opposite direction. Suppose Bitcoin rises by 10% on the first day and falls by 10% on the next day. The final price of Bitcoin will be slightly lower than the starting value (about 1% lower). A simplified triple product would make a profit of 30% on the first day and then lose 30% on the second day with a higher base, resulting in a final price approximately 9% lower than the initial value. This effect will become more severe as volatility increases and holding periods extend. This makes Bitcoin particularly harsh on daily leveraged products, as large fluctuations can occur without a sustained trend. Relevant analysis shows that Bitcoin's implicit and historical volatility changes extremely sharply, which is an important consideration when leverage is combined with daily compound interest.

Investor Points

A strong Bitcoin trend market may favor daily leverage strategies, but repeated reversals can quickly erode capital. Therefore, focusing solely on direction is not enough; Bitcoin's path to its final price is equally important.

What are the additional costs of using futures?

These funds also inherit the structural costs inherent in futures based cryptocurrency exposure. Its benchmark index will regularly roll over expiring contract positions to far-month contracts. When far-month futures prices are higher than contracts approaching expiration (a phenomenon often referred to as the "positive market" or Contango), frequent replacement of cheaper contracts with more expensive ones creates an additional performance drag. Therefore, futures pricing, collateral yields, transaction costs and tracking errors will all be independent of the trend of the Bitcoin spot market. This distinguishes the new product from spot Bitcoin ETFs that directly hold Bitcoin and do not have to maintain continuous futures exposure.

The SEC order also makes a technical distinction between product names and their regulatory structure. Although these products use the word "ETF" in their names, they will be listed as "commodity trust shares" and are exchange-traded products under the SEC framework.

Investor Points

Traders evaluating triple Bitcoin exposure need to consider three independent forces: leverage, daily compound interest, and futures market costs. Bitcoin spot performance alone cannot explain the fund's long-term returns.

Why is SEC approval important to the U.S. cryptocurrency ETF market?

Volatility Share Funds have previously operated Bitcoin and Ethereum products with double leverage, but the latest approval raises the maximum daily leverage level for such U.S. listed cryptocurrency products to new heights. The decision also places cryptocurrencies in the same triple product line with gold, silver, crude oil and natural gas, another move to view digital assets as part of a broader market for tactical commodity exposure. These products are likely to attract mainly active traders seeking to amplify short-term fluctuations, rather than investors seeking long-term exposure to Bitcoin or Ethereum. For the latter, spot products avoid the complexity of daily leverage resets and futures rollovers.

The last step now is to initiate the transaction. Although Cboe has received approval to list the six products, the SEC's cleanup of exchange rule changes does not mean they can start trading immediately. Before the first batch of shares enter the market, volatility share funds must complete the securities registration process.