SEC approves 3x leveraged bitcoin and ether ETFs: how the daily rebalance works and why leverage decays in a sideways market

What the SEC approved

Cboe BZX itself filed the proposed rule change on August 10, the SEC published notice of it on August 14 and approved it on October 2. The decision covers six series of the VS Trust, sponsored by Volatility Shares. Each product aims to deliver three times the daily move of its underlying asset: bitcoin, ether, gold, silver, crude oil or natural gas.

According to Crypto Briefing and Coinpedia, this is the first US approval of exchange-traded products with 3x leverage on bitcoin and ether. Bloomberg ETF analyst Eric Balchunas called it a "big win" for Volatility Shares. The firm is no newcomer here: it already runs 2x bitcoin and 2x ether funds, BITX and ETHU.

The decision stands out against what happened in December 2025. Back then, as The Globe and Mail and Yahoo Finance reported, the SEC sent letters to nine issuers, including Direxion, ProShares and GraniteShares, and paused its review of funds offering more than 2x leverage. The regulator pointed to Rule 18f-4 under the Investment Company Act of 1940, which caps a fund's risk at 200% of an unleveraged portfolio. The Volatility Shares products are built differently. They are trust series registered under the Securities Act of 1933, and listing them required a separate exchange rule.

When trading starts

You can't buy these funds yet. Approving a listing rule and launching a fund are separate steps. Before the first share trades, a Form S-1 registration statement has to become effective. Neither the SEC nor the issuer has given a timeline, and the reports on the decision don't list tickers for the new products. With the coins themselves, there is nothing to wait for: on VertEXchange you can exchange crypto online and receive bitcoin or ether straight in your wallet.

How daily leverage works

The key word is "daily". The fund promises three times the return for a single trading day and promises nothing for a week, a month or a year. If bitcoin gains 1% in a day, the fund should gain about 3%; if it drops 1%, the fund should lose about 3%. At the end of every day the fund resets its position so that tomorrow's leverage is exactly 3x again: after a rise it adds exposure, after a fall it cuts it. That is the daily rebalance.

Because of it, the result over several days is not three times the price change. Take $100 in the underlying asset and $100 in a 3x leveraged fund. On day one the price falls 10%, on day two it rises 10%.

The asset is almost back where it started and is down 1%. The fund is down 9%, nine times as much. The 30% gain on day two is calculated from 70, not from 100, so it falls short of the starting level.

Leverage decay in a sideways market

If these swings keep repeating, the gap widens. Five pairs of days of "down 10%, up 10%" leave about $95 of the $100 in the asset and about $62 of the $100 in the 3x fund. Over ten days the price moved 5%, while the fund lost more than a third of its value. This is called leverage decay, or volatility decay. The sharper the swings and the higher the leverage, the stronger it gets.

In a smooth trend with no pullbacks the math works the other way: two days of plus 10% lift the asset by 21% and a 3x fund by 69%. That is why these products are designed for short-term bets with a clear direction, and held for a long time in a trendless market they almost always do worse than three times the asset. There is an extreme case too: if the underlying asset drops by roughly a third in a single day, a 3x fund loses nearly everything.

On top of that comes the futures roll. Near-dated contracts have to be swapped for later ones on a regular basis, and when later contracts cost more than near ones, every swap eats a little of the return.

What the 2x funds have shown

There is already a real-world example. By the count of 24/7 Wall St., republished by Yahoo Finance, from the start of 2026 to August 5 bitcoin fell 26.8%, while the 2x leveraged BITX lost 55.9%, more than double the drop. The fund's net assets, according to the same data, shrank from $2.25 billion in March to $1.03 billion at the end of May, driven by both the price decline and outflows. With 3x leverage the same effect will be more visible.

Not a single bitcoin inside the fund

None of the six products holds its underlying asset. The bitcoin and ether funds get their exposure through CME Group futures, and the other four also work through futures. A buyer of the shares owns a slice of the trust, and the trust holds contracts on the price. There are no coins behind them.

This has practical consequences:

• you can't withdraw bitcoin from such a fund to your own wallet, send it or spend it: you can only sell the shares, and the money stays in your brokerage account;
• the shares trade during exchange hours, while bitcoin trades around the clock and on weekends, so the fund catches up with overnight or weekend moves all at once;
• access to the position depends on your broker, its rules and the country where the account is opened.

Spot bitcoin ETFs hold real coins with a custodian. Citigroup pointed to returning demand for them when it raised its bitcoin price forecast to $113,000. Even there, the shareholder holds no keys. We covered how holding through an intermediary differs from holding at your own address in our article on the difference between custodial and non-custodial wallets.

Leverage in action: this week

The market showed how leverage behaves on sharp reversals right before the SEC decision. On October 2 a weak US jobs report pushed bitcoin to almost $87,100, by October 3 the price was back at $84,600, and forced position closures across the crypto market reached $433.6 million, three quarters of them from traders betting on a rise. We broke this down in our piece on the $433.6 million in liquidations after the US jobs report.

A 3x fund is gentler than a futures account on an exchange: its buyer gets no margin call and can't lose more than they put in. The mechanics are related, though. After a fall the fund cuts its position, which means selling what just got cheaper, and after a rise it builds the position back at a higher price. Instead of one liquidation, you get small daily sales near the lows and purchases near the highs.

Coins at your own address

Bitcoin or ether in your own wallet has no daily rebalance, no futures roll and no margin calls. If the price drops 10% and then rises 10%, you still hold the same number of coins, and they are worth 1% less, not 9%. If you want the bitcoin itself, on VertEXchange you can buy BTC with USDT on TRON with no account, email or phone number, and the coins go straight to your wallet. And if you later need ether, you can swap bitcoin for ether without registration. 3x leveraged funds are a separate instrument with their own math, and it pays to understand that math before the new products get their tickers.