SEC Clears 3x Leveraged Bitcoin and Ethereum Funds for Trading

The SEC approved a rule change on October 2 that lets the Cboe exchange list six funds built to deliver three times the daily price moves of Bitcoin, Ethereum, gold, silver, crude oil, and natural gas, per the agency's order.

The funds come from Volatility Shares, the firm behind existing 2x Bitcoin and Ethereum products. Shares will trade on Cboe's BZX Exchange like a regular stock.

An ETF, or exchange-traded fund, is a basket of assets you buy and sell through a brokerage app like a share. A leveraged one uses debt and other financial tools to amplify returns, and losses.

These funds aim for triple. If Bitcoin futures rise 2% in a day, the fund aims to gain 6%. If they fall 2%, it aims to lose 6%.

The funds mainly get that exposure through futures, which are contracts to buy or sell an asset at a set price on a later date.

But there's a catch in the word "daily." These funds reset every day, so the 3x promise applies to one day at a time. Over longer stretches, results can drift far from three times the asset's move.

So, for example Bitcoin futures drop 10% on Monday, then rise 10% on Tuesday. The asset ends down 1%, while a 3x fund falls 30%, gains 30% and ends down 9%. If you have $100 worth of Bitcoin, a 30% drop takes off 30% of $100, which is $30, leaving you with $70 net. A 30% gain adds 30% of $70, which is $21. You're at $91, overall 9% down after the movement.