CoinDesk
The SEC approved a Cboe BZX rule change on Oct. 2 allowing six Volatility Shares ETFs to target three times the daily return of their underlying assets. The lineup includes Bitcoin and Ether, alongside gold, silver, crude oil and natural gas. The crypto funds will use regulated futures, not hold the tokens, and cannot begin trading until their registration statements become effective.
Why it matters
The approval raises the U.S. leverage ceiling for crypto funds from 2x to 3x, expanding the range of trading tools available to investors. But the products are designed for daily exposure, not to deliver three times an asset's return over longer periods. Each fund must rebalance daily, buying futures after gains and selling after losses. Those mechanical trades can amplify market moves, especially as a fund grows.
The daily reset also creates volatility decay. If Bitcoin rises 10% one day and falls 10% the next, it ends the two-day period down 1%. A 3x fund would gain 30% and then lose 30%, leaving it down 9%. Sideways price action and repeated swings can therefore erode returns even when the underlying asset ends near its starting point.
Market impact
The approval is a milestone for crypto's integration into conventional fund markets, but it is not a green light for long-term buy-and-hold use. Volatility Shares warns that higher benchmark volatility increases the potential for decay, and its prospectus says the 3x Bitcoin ETF may be speculative and could expose investors to a total loss.
The funds also face futures-roll costs when they replace contracts nearing expiry with later-dated ones. That can weigh on longer-term returns. Their launch timing remains uncertain because the SEC order set no deadline for the registration statements to become effective. Until then, spot ETFs remain the simpler route for investors seeking long-term Bitcoin or Ether exposure.
Frequently asked questions
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What must happen before the 3x Bitcoin and Ether ETFs can trade?
The SEC must declare the funds' registration statements effective. The approval order did not set a deadline.
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Will the new funds hold Bitcoin or Ether directly?
No. The funds will use regulated futures tied to Bitcoin and Ether rather than holding the tokens.
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How can a 3x fund lose money when Bitcoin ends near its starting price?
Daily resets compound gains and losses. In the example given, Bitcoin rises 10% and then falls 10%, while a 3x fund gains 30% and then loses 30%, ending down 9%.
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Why do daily rebalances matter for market moves?
To maintain 3x daily exposure, the funds buy futures after gains and sell after losses. These mechanical flows can amplify moves, particularly as a fund grows.
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What costs can weigh on the funds beyond volatility decay?
When futures approach expiry, a fund must sell them and buy later-dated contracts. That rolling can create a steady drag on longer-term returns.
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