CryptoSlate
The SEC approved exchange-listing rules on Oct. 2 for proposed 3x Bitcoin and Ethereum futures funds from VS Trust, bringing the products closer to trading. The funds seek three times their benchmark's daily return before fees and expenses, not three times the return over a month or longer. An Oct. 7 amended filing lists a 1.85% annual management fee for both products, with estimated breakeven returns of 1.98% for the Bitcoin fund and 2.78% for the Ethereum fund.
Why it matters
Daily resetting can turn a correct long-term view into a losing fund position. If Bitcoin falls and later returns to its starting price, a 3x fund can remain below its original value because losses reduce the capital used to calculate future exposure. The fund then cuts exposure after declines and compounds gains on a smaller balance during a rebound.
The SEC has illustrated the risk with a four-month example in which an unnamed index gained about 8% while a fund targeting three times its daily return lost 53%. That example was not a Bitcoin fund or a forecast for VS Trust's products, but it shows how the path of returns can matter more than the final destination. Sustained advances can produce the opposite result, allowing daily compounding to exceed three times the benchmark's cumulative gain.
Market impact
The proposed products would use futures rather than direct spot exposure. Maintaining that exposure requires replacing contracts as they approach expiry, and the pricing of those replacements can either help or hurt returns. The funds also fall outside the Investment Company Act of 1940 framework and may issue Schedule K-1 tax reporting, including taxable allocations without cash distributions.
The Oct. 7 filing says the funds had not begun trading, so there is no performance record for BITH or ETHK. Their appeal is concentrated exposure without managing a futures margin account, but investors would be accepting daily exposure changes, added futures costs and the possibility that the entire investment could be lost in a day or overnight.
Frequently asked questions
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Why can a 3x Bitcoin fund lose money if Bitcoin returns to its starting price?
The fund resets its exposure each day. Losses reduce the capital used for future returns, so a later recovery in Bitcoin may not restore the fund's previous value.
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What returns do VS Trust's proposed funds target?
The proposed funds target three times the daily return of their Bitcoin or Ethereum benchmark before fees and expenses. The target does not apply directly to monthly or longer-term returns.
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What did the SEC's leveraged-fund example show?
The SEC described a four-month period in which an unnamed index gained about 8% while a fund seeking three times its daily return lost 53%. The example was not a Bitcoin fund.
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What extra costs and risks do the proposed products carry?
The filings list a 1.85% annual management fee and estimated breakeven returns of 1.98% for the Bitcoin fund and 2.78% for the Ethereum fund. Futures replacement costs can also help or hurt returns.
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Had BITH and ETHK begun trading when the amended filing was submitted?
No. The Oct. 7 filing said the funds had not begun trading, so BITH and ETHK had no performance record at that point.
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