SEC Clears Volatility Shares’ 3x Bitcoin, Ether ETPs

The U.S. Securities and Exchange Commission approved six triple-leveraged Bitcoin and Ether exchange-traded products from Volatility Shares, the first such U.S. products, according to the agency’s decision. The funds can be listed on the Cboe BZX Exchange.

Trading will begin after the SEC declares each fund’s separate Form S-1 registration statement effective. Three funds will seek to deliver three times the daily performance of Bitcoin, while the other three will seek to deliver three times the daily performance of Ether.

The products are designed for short-term trading and will rebalance their portfolios each day. Their returns over longer periods can differ substantially from three times the performance of the underlying asset because daily gains and losses compound.

Repeated price swings can cause losses even if Bitcoin or Ether later returns to its starting price. A leveraged product can also lose value when the underlying asset records gains and losses in alternating periods.

The funds will track Bitcoin and Ether futures linked to the Chicago Mercantile Exchange futures calendar rather than the cryptocurrencies’ spot prices. Fund managers will need to sell contracts nearing expiration and buy contracts for later months. That process can affect returns and add trading costs.

The ETPs will use mechanical rebalancing before the close of each trading day to adjust their positions. Sharp price changes can increase the amount of trading required and raise the funds’ expenses.

The products are classified as exchange-traded products under the Securities Act of 1933, rather than investment companies governed by the Investment Company Act of 1940. Investors will not own Bitcoin or Ether directly through the funds.

The approval came less than three weeks after the Senate failed to pass the CLARITY Act. The SEC’s framework treats the products under rules used for certain traditional physical commodity products.