On October 2, the U.S. Securities and Exchange Commission approved the listing on the Cboe BZX exchange of two Volatility Shares funds - 3x Bitcoin ETF and 3x Ether ETF. The new products are designed for triple the daily movement of Bitcoin and Ethereum, and they can be bought or sold through a regular brokerage account, like stocks.
What exactly was approved
An ETF is an exchange-traded fund that trades on an exchange like a regular stock. The new Volatility Shares products are designed for threefold reflection of the daily dynamics of BTC and ETH. If the underlying asset rises 1% in a day, the fund targets a movement of about 3%. If the asset falls 1%, the fund's movement may also be about 3% down. At the same time, the BTC and ETH funds do not directly buy them. Exposure is formed through futures instruments.
The decision concerns more than just crypto
With the same decision, the regulator approved similar 3x funds for other assets. The list included:
- gold;
- silver;
- oil;
- natural gas.
Before this, the U.S. market already offered exchange-traded products on Bitcoin and Ethereum, but the new funds add threefold daily leverage.
Where the main risk is
The key word here is daily movement. The fund recalculates its exposure every day. This means that the final return over a week or a month can differ greatly from a threefold movement of BTC or ETH itself over the same period. If the asset sharply moves up and down for several days in a row, daily rebalancing can gradually reduce the value of the fund even in a situation where the underlying asset eventually returns approximately to its original level. Leverage equally increases both profit and loss.
What this changes for a trader
Now enhanced exposure to the movement of BTC and ETH can be obtained through a traditional brokerage account. This does not require directly buying cryptocurrency or opening a separate position on a crypto exchange. At the same time, the funds themselves use futures to form a position. Therefore, growing interest in such ETFs can increase activity in the BTC and ETH futures market as well.
Why this is important for the market
The emergence of new instruments expands traditional investors' access to trading crypto volatility with leverage. At the same time, it increases the importance of risk management. Even a small intraday movement of the underlying asset with a threefold multiplier turns into a significantly stronger movement of the fund itself. Therefore, such products are more suitable for short-term trading than for passive holding without position control.
Taking leverage because your deposit is small?
Triple leverage makes it possible to increase the result of a market movement, but it just as quickly increases losses too. The trading notional can also be increased in another way. Prop trading allows you to pass a challenge and gain access to the company's account without the need to use comparable personal capital. At the same time, risk is limited by the rules of a specific program, so before buying it is important to study the drawdown limits, available instruments, and trading conditions.