SEC Greenlights 3x Leverage ETFs for Bitcoin and Ethereum Traders
The US Securities and Exchange Commission (SEC) has approved a rule change allowing six new Exchange-Traded Funds (ETFs) to be listed, each providing 3x leverage on the daily return of the underlying asset. The funds, issued by Volatility Shares, will track the price of Bitcoin (BTC), Ethereum (ether), gold, silver, crude oil, and natural gas. This is a significant milestone, as previously, crypto funds in the US had been capped at 2x leverage.
The funds will hold regulated futures tied to the underlying assets, rather than actual tokens. Market veterans have warned that these funds are not suitable for long-term investors, but rather for traders who can handle the high volatility and risk of total loss.
As pointed out by Bloomberg's Senior ETF Analyst Eric Balchunas, 'Leveraged ETFs are for trading, not investing.' Blockstream CEO Adam Back also cautioned that 'auto re-leveraging strategies bleed capital in a sideways chop, especially with a high volatility underlying... like bitcoin.'
The funds will rebalance daily to maintain a 3x leverage, which can amplify intraday moves and lead to volatility decay. Volatility Shares itself flags the risk, stating that 'the more volatile the benchmark, the greater the potential for volatility decay.'