Approval Overview

On October 2, 2023, the U.S. Securities and Exchange Commission (SEC) granted approval for the Cboe exchange to list six new funds designed to deliver three times the daily performance of futures contracts linked to various assets. These include Bitcoin, Ethereum, gold, silver, crude oil, and natural gas.

The approved funds, offered by Volatility Shares, are expected to trade on Cboe’s BZX Exchange as typical stocks. However, the SEC’s order did not specify a launch date for these funds.

Mechanics of the 3x Funds

These funds are classified as *leveraged exchange-traded funds (ETFs)*, which utilize debt and financial instruments to amplify returns on investment. The unique feature of these funds is their aim to achieve triple the daily performance of the underlying assets.

For instance:

• If Bitcoin futures increase by 2% in a day, the corresponding fund seeks a 6% increase.
• If Bitcoin futures decrease by 2%, the fund aims for a 6% decrease.

It’s crucial to note that the leverage is applied on a daily basis. As such, if an asset experiences fluctuations over multiple days, the outcomes can deviate significantly from the intended threefold return.

Potential Risks and Considerations

The SEC and the Financial Industry Regulatory Authority (FINRA) have expressed concerns regarding the nature of leveraged funds. They highlight the risk of extended performance results diverging from the anticipated daily targets. As reported:

“Returns over more than a day can differ significantly from the daily target.”

The volatility associated with such funds means that while a 3x fund might gain or lose in sync with the asset’s daily changes, long-term performance can result in unexpected outcomes. 

Regulatory Context

The approval of these funds was necessary due to Cboe’s fast-track listing procedures, which exclude products aiming for multiple returns of an asset’s performance. The SEC required a comprehensive evaluation to ensure adherence to all listing standards while maintaining investor protection.

The SEC has continued to emphasize existing safeguards, ensuring brokers fulfill their commitment to act in the best interest of retail customers as mandated by Regulation Best Interest.

A Brief History of Leveraged Crypto Funds

In 2023, Volatility Shares launched the first leveraged crypto ETF tracking Bitcoin futures. This was followed by the debut of spot Bitcoin ETFs in January 2024 after years of resistance from regulatory authorities. As demand for more leverage increased, proposals for further leveraged products were submitted, prompting the SEC to impose stricter guidelines.

Despite regulatory pushback against funds exceeding 2x leverage, Volatility Shares has persisted in offering 2x leveraged funds on various other cryptocurrencies throughout 2026.

Next Steps

While the SEC has approved the listing of these 3x funds, the order has not mandated a specific launch date. The listing will proceed once each fund fulfills the requirements outlined in its registration statement.