- The SEC has approved 3x leveraged Bitcoin and Ethereum ETPs on Volatility Shares.
- These ETPs are designed to multiply the daily performance of underlying assets.
- The approved products attract regulatory nuances, hidden costs, and systemic impacts.
The US Securities and Exchange Commission (SEC) has approved 3x leveraged Bitcoin and Ethereum exchange-traded products (ETPs) for the first time in the country. This comes less than three weeks after the CLARITY Act failed to pass the Senate.
What Exactly Did the SEC Do?
The SEC’s latest 3x leveraged ETF allows Volatility Shares, an asset management firm and ETF issuer, to list six triple-leveraged funds on the Cboe BZX Exchange. It is a milestone decision, since US crypto funds were previously capped at 2x leverage. Meanwhile, trading of 3x leveraged products would begin after the SEC declares each fund’s separate Form S-1 registration statement active.
Unlike standard spot ETFs, leveraged ETPs are designed as short-term trading products that seek to deliver three times the daily performance of Bitcoin or Ethereum. Their portfolios are rebalanced each day, meaning a 3x product will not necessarily deliver three times the asset’s long-term return. In volatile markets, repeated daily moves can also lead to significant losses even if the underlying asset eventually returns to its starting price.
Hidden Features of the SEC’s Latest Crypto Regulation
While the average cryptocurrency user celebrates the SEC’s “quick” intervention after the CLARITY Act’s failure, the latest regulations involve several regulatory nuances, hidden costs, and systemic impacts. For instance, the new funds are technically classified as Exchange-Traded Products (ETPs) under the Securities Act of 1933, rather than traditional ETFs governed by the Investment Company Act of 1940.
The 3x leveraged funds are tied to the CME futures calendar and are not linked to spot Bitcoin and Ether. Therefore, users need to factor in monthly futures contract expiry, meaning that fund managers must continuously sell the expiring contract and buy the next month’s contract.
Other unique features of 3x leveraged ETPs include mechanical rebalancing to manage positions before market close, and the understanding that the SEC views digital assets through the same regulatory lens as traditional physical commodities.
Related: SEC Proposes Rule Update to Recognize Blockchain in Securities Records
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
