Key takeaways:
- Cboe wants to introduce 3x Bitcoin and Ether ETFs: the funds are intended to provide three times the daily price change of BTC and ETH, using mainly CME futures contracts.
- The SEC must approve the products.
- Demand for cryptocurrency ETFs remains volatile: on August 13, $131.13 million flowed out of bitcoin ETFs, and ether funds attracted $5.9 million. A day later, BTC lost another $56.2 million.
3x bitcoin and 3x ether
Volatility Shares LLC is behind the offer. The proposed products would include funds based on gold, silver, oil, natural gas, bitcoin and ether. In the case of the latter two, investors could gain exposure to 3x the daily result of BTC and ETH.
It is important to emphasize, however, that the funds would not purchase bitcoins or ethers directly. Their basic instrument would be CME futures contracts, i.e. contracts allowing for exposure to the future price of a given asset. The funds would also use cash and cash equivalents as collateral.
The 3x mechanism means that when the underlying asset increases by 1%, the fund should gain approximately 3%, before fees and expenses. For a 1% decline, the loss would also be around 3%. Therefore, this solution is intended primarily for high-risk-aware investors.
The SEC has the final say
Cboe must first obtain approval from the SEC. The Commission has 45 days from the publication of the proposal in the Federal Register to make a decision, initiate proceedings or extend the procedure. However, in the case of such complex products, the regulator may use the opportunity to further extend the process, even up to the maximum period provided for by law.
If the applications are accepted, it will be another step towards expanding the offer of cryptocurrency exchange products in the US. At the same time, 3x ETFs can attract investors hoping for quick profits, but can also quickly increase their losses.
Products of this type differ from classic spot ETFs for bitcoin and ether. Their goal is not to simply mirror the price of the cryptocurrency, but to achieve three times its daily performance. This means that the fund’s performance may differ significantly from three times the asset’s price change over a longer period of time. An additional element is the daily rollover of futures contracts. The funds are supposed to transfer some of the expiring positions to subsequent contracts, which may affect their final result.
Demand remains uneven
The demand for cryptocurrency investment products in the US remains diverse. For example, on August 13, spot BTC ETFs recorded a total of USD 131.13 million in outflows, while ether-based funds received USD 5.9 million inflows. A day later, USD 56.2 million was withdrawn from BTC ETFs. No movement was recorded on the market for their ether counterparts.
If the SEC gives the green light, American investors will have access to some of the most aggressive exchange-traded products related to the largest cryptocurrencies. For the market, this will be another test of how far regulators are willing to allow leveraged financial exposure to bitcoin and ether.
