The U.S. Securities and Exchange Commission approved on Friday (2) a Cboe BZX rule change that allows the listing of exchange-traded products with daily exposure 3x to Bitcoin and Ether. The decision also covers leveraged funds linked to gold, silver, oil and natural gas.
The products are part of the VS Trust and will be managed by Volatility Shares. Although they carry “ETF” in the name, they are structured as Commodity-Based Trust Shares and not as traditional investment funds regulated by the Investment Company Act of 1940.
The 3x Bitcoin ETF and the 3x Ether ETF will seek to deliver, before fees and expenses, three times the daily change of their respective benchmarks. Exposure will be built primarily through futures contracts, and not through the direct purchase of Bitcoin or Ether in the spot market.
The funds may use futures contracts accompanied by cash and equivalents held as margin or collateral. The structure also permits resorting to other maturities and related instruments when necessary.
Leverage is daily, not long-term
The 3x structure means that a 2% gain in the benchmark on a given day would aim to produce approximately 6% return in the fund on that same day, before costs. A 2% drop would imply, by the same principle, a loss close to 6%.
That multiplier, however, is reset daily. Because of the compounding of returns, the fund's cumulative performance can diverge significantly from three times the asset's cumulative change over longer periods, especially in volatile markets.
This effect makes the products more suitable for short-term strategies than for a simple long-term leveraged exposure to Bitcoin or Ether.
The approval expands the regulated infrastructure for crypto-linked products in the United States. The American market already has instruments that offer daily exposure 2x to Bitcoin and Ether, while the new products push that limit to 3x within an exchange-traded structure.
The VS Trust registration identifies BITH as the planned ticker for the Bitcoin product and ETHK for the Ether one. The SEC order does not establish a date for the start of trading.
