Cboe Seeks First US 3x Leveraged Bitcoin and Ethereum ETFs

Bitcoin

Cboe BZX has asked the U.S. Securities and Exchange Commission to approve two funds targeting three times the daily performance of Bitcoin and Ethereum.

If approved and launched, they would be the first U.S.-listed 3x ETFs tied to the two cryptocurrencies. Volatility Shares would sponsor both products as part of a six-fund proposal that also covers gold, silver, crude oil and natural gas.

The SEC notice, published on August 14, follows Cboe’s submission of the proposed rule change four days earlier. It opens a regulatory review rather than authorizing the funds to begin trading.

Why Cboe Needs Separate SEC Approval

Cboe wants to list the products as Commodity-Based Trust Shares under BZX Rule 14.11(e)(4).

The exchange already has generic standards that allow qualifying commodity products to list without an individual rule filing. Those standards, however, prohibit funds designed to deliver a specified multiple of a benchmark.

The proposed Bitcoin and Ethereum funds fall outside that framework because each would seek 3x the daily return of its futures benchmark. Cboe is therefore asking the SEC to approve an exception for these specific products through the 19b-4 process.

Both would operate as commodity pools overseen by the Commodity Futures Trading Commission. Neither would be registered as an investment company under the Investment Company Act of 1940.

The Funds Would Use Futures, Not Hold Crypto

The Bitcoin fund would primarily invest in first- and second-month Bitcoin futures traded on the Chicago Mercantile Exchange. The Ether fund would use the equivalent CME Ether contracts, with cash and cash equivalents held as collateral.

Each benchmark would move from the contract approaching expiration into the following contract over five business days. Around 20% of the expiring position would be rolled each day.

If the main contracts become unavailable because of position limits, margin requirements or restrictions imposed by futures brokers, the funds could use later-dated futures, crypto-linked ETFs and ETPs, or listed options.

Their performance would therefore depend on more than the direction of the spot market. Futures pricing, contract rolls, trading costs and the fund’s ability to maintain its target exposure would all affect returns.

The underlying asset alone no longer explains how many crypto funds behave. Our recent examination of Bitcoin and Ether income ETFs showed how options can reshape a fund’s upside, downside and distributions. The proposed Cboe products would alter the payoff in another way by adding daily futures leverage.

The 3x Target Lasts for One Trading Day

If the relevant futures benchmark rises 5% in a session, the fund would seek a gain of approximately 15% before fees and expenses. A 5% decline would imply a targeted loss of roughly 15%.

That relationship starts again the next day.

Consider a benchmark that gains 10% and then falls approximately 9.09%, returning to its starting value. A 3x daily fund would first rise 30% and then lose about 27.27% from its new value. It would finish the two-day period approximately 5.45% lower even though the benchmark ended flat.

This is a consequence of daily compounding, not necessarily a failure to track the benchmark. Persistent moves in one direction can help performance, while repeated reversals can erode the fund’s value.

These products would not provide three times Bitcoin’s or Ether’s return over any period an investor chooses. They would be short-horizon trading instruments that require the position to be monitored from one session to the next.

Cboe argues that the funds can be supervised effectively because their main futures contracts trade on a CFTC-regulated market covered by surveillance-sharing arrangements.

Net asset value would be calculated daily, while an intraday indicative value would be published every 15 seconds during regular trading hours. Cboe could halt trading if important pricing or portfolio information stopped being available.

Those measures address market surveillance and transparency. They do not reduce the losses, compounding effects or tracking differences that can come with 3x daily exposure.

SEC Review Begins, but No Launch Date Is Set

The SEC generally has 45 days from publication of the notice in the Federal Register to approve or reject the rule change or begin a longer review. The initial period can be extended to as many as 90 days under the conditions set out in the filing.

An exchange decision is not the only step. The VS Trust must also have an effective registration statement before any shares can trade.

The current proposal does not provide tickers, expense ratios or a launch date. Until the listing and registration requirements are cleared, the funds remain proposals.

If they reach the market, investors holding them beyond a single session would need to follow daily compounding, futures rolls and fund expenses, not simply whether Bitcoin or Ether moved higher or lower.

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