The SEC on October 2 approved a change to Cboe BZX’s listing rules for six Volatility Shares products, including a Bitcoin ETP and a 3x leveraged Ether ETP. These funds aim to triple the daily performance of their reference asset, before fees. However, their launch still depends on a final regulatory step.
In brief
- On October 2, the SEC validated a rule change to Cboe BZX regarding six commodities-related ETPs.
- Bitcoin and Ether funds target three times the daily performance of their underlying asset thanks to futures contracts.
- Approval is not enough to launch the products: their registration must still become effective.
Six ETPs get green light from SEC
The market for crypto-related financial products continues to evolve. Yet spot Bitcoin ETFs just recorded their first outflow after nine days of inflows, despite $3.1 billion collected over that period.
In this context, the SEC approved on October 2 a modification of the listing rules of Cboe BZX. This decision concerns six VS Trust products, linked to Bitcoin, Ether, gold, silver, crude oil and natural gas.
Cboe BZX had filed its application on August 10, before it was released for comment on August 19. Because these leveraged products do not follow the usual listing procedure for commodity trusts, the SEC reviewed each filing separately.
A 3x lever that amplifies daily variations
Concretely, each fund seeks to reproduce three times the daily performance of its reference asset. To achieve this, it primarily uses futures contracts, supplemented by cash, and adjusts its exposure every day.
Thus, a daily increase of 1% can generate a gain of 3% before fees. Conversely, a 1% drop can result in a 3% loss.
However, this objective does not apply over several days. Indeed, the sequence of daily variations can cause the cumulative performance of the fund to be three times that of its underlying. FINRA particularly warns against this risk.
In addition, the renewal of futures contracts can weigh on results. If the earliest maturities are not available, funds may use longer-term contracts, other listed products or options. Volatility Shares already offers comparable strategies, including leveraged funds presented on its official website.
A launch still subject to a final stage
Despite the green light from the SEC, investors cannot yet trade these six products. The authority has validated the platform’s listing rules, but the issuer must still obtain the entry into force of its registration. This step will determine the launch date.
Furthermore, these ETPs do not fall under the Investment Company Act of 1940, the regulatory framework for traditional investment funds. They remain subject to the rules applicable to their structure and the assets concerned.
Finally, their arrival is part of the expansion of listed crypto products. However, not everyone has the same success, as shown by the XRP ETFs that went into the red at the beginning of October.
The next step will therefore be the effective registration of the six funds. Then, investment flows will make it possible to measure market interest in these products, in a context marked by record gold and continued demand for Bitcoin ETFs.
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