SEC Greenlights Listing Rules for 3x Leveraged Bitcoin and Ether Futures ETPs

On October 2, the SEC approved a listing proposal from the Cboe BZX exchange for VS Trust’s 3x Bitcoin and 3x Ether ETFs. This decision removes a primary regulatory hurdle for these products, sponsored by Volatility Shares, which aim to provide investors with amplified daily exposure to crypto futures.

The order encompasses six separate funds, including those tracking silver, gold, crude oil, and natural gas. This approval marks a significant step forward for a proposal that was first introduced to the exchange in August.

For brokerage clients, this approval creates a viable path for products with higher daily leverage targets. Because Cboe’s standard commodity-trust guidelines typically exclude products targeting specific multiples of a benchmark, these funds required individual SEC approval, though they remain subject to all other initial and continuing listing requirements.

According to a preliminary prospectus dated August 17, the proposed tickers for these products are BITH for Bitcoin and ETHK for Ether. The filing notes that these symbols are provisional and that securities cannot be sold until registration is officially effective.

It is important to note that the October order approves the exchange’s rule change but does not confirm that registration is effective or that trading has commenced. As of October 4, a first trading date remains unconfirmed; therefore, the decision should not be viewed as immediate availability through brokerage accounts.

Despite using “ETF” in their nomenclature, the SEC has classified these funds as exchange-traded products (ETPs) structured as Commodity-Based Trust Shares. Consequently, they do not carry the same investor protections found in funds registered under the Investment Company Act of 1940.

Understanding the 3x Daily Target

Each crypto product aims to deliver three times the daily performance of its respective benchmark, excluding fees and expenses. These benchmarks track portfolios of first- and second-month futures contracts, utilizing a combination of futures and cash collateral. As a result, the performance is tied to the daily return of a futures portfolio rather than the spot price of the underlying asset.

The preliminary prospectus defines a “day” as the period between consecutive net asset value calculations, with the funds seeking to rebalance daily. Because daily results compound based on shifting asset values, the specific sequence of gains and losses significantly impacts performance over longer holding periods.

The SEC’s investor bulletins caution that daily leveraged products can deviate significantly from their stated multiples over several weeks or months, particularly during periods of high volatility. The prospectus further warns that long-term returns may differ in both magnitude and direction, meaning a 3x daily target does not guarantee triple the cumulative return of Bitcoin or Ether.

Furthermore, leverage amplifies potential losses. SEC staff have specifically warned that ETFs employing leveraged Bitcoin-futures strategies increase overall volatility and can expose investors to sudden and substantial financial losses.

Source link