Key Takeaways
- • The SEC approved listing rules for VS Trust's 3x leveraged bitcoin and ethereum funds, moving the products one step closer to trading, according to a report by CryptoSlate cited by Digital Today (디지털투데이).
- • The funds target three times the daily return of the underlying asset, not the long-term return, so investors can lose principal even if bitcoin later rebounds to its starting level.
- • VS Trust's amended filings of Oct. 7 list an annual management fee of 1.85% per product, with estimated breakeven returns of 1.98% for the bitcoin fund and 2.78% for the ethereum fund.
- • The products use futures rather than spot holdings, so futures roll costs and tax reporting via Schedule K-1 add complexity beyond simple price exposure.
- • The two products have not yet begun trading and have no performance record; the issuer warns investors could lose their entire investment within a day or overnight.
Summary
A warning has emerged that investors in 3x leveraged exchange-traded funds may not recover losses even if bitcoin rebounds. On Oct. 10, blockchain outlet CryptoSlate reported that the risks inherent in the product structure are again drawing attention after the U.S. Securities and Exchange Commission approved listing rules for asset manager VS Trust's 3x bitcoin and ethereum fund, according to the Digital Today (디지털투데이) report.
The central issue is the daily reset. The funds are designed to deliver three times the daily return of the underlying asset, not three times its long-term return. Because exposure is reset each day, a fund can lose capital faster during declines, and when a rebound begins, gains accrue on the reduced capital base. As a result, investors may not recover principal even if the underlying asset returns to its starting point. The SEC's investor bulletin illustrated this with an index that rose about 8 percent over four months while a fund tracking three times the daily return posted a 53 percent loss. The example did not involve a bitcoin product, but it demonstrates the structural risk. Conversely, a long, sustained uptrend could compound returns above three times the underlying, so both the end-point and the path of interim price moves materially affect outcomes.
The products also depart from conventional crypto ETFs. Rather than holding spot bitcoin or ether, the funds use futures contracts, which expire and must be rolled repeatedly. Roll-related price differentials can add to costs or benefit investors, meaning fund returns cannot be estimated by simply multiplying spot returns by three. Costs are also material. According to amended filings submitted by VS Trust on Oct. 7, the annual management fee is 1.85 percent for each product, and estimated returns needed to cover expected operating expenses were 1.98 percent for the bitcoin fund and 2.78 percent for the ethereum fund.
Tax treatment differs as well. The products are classified as commodity pool products rather than standard investment company ETFs under the Investment Company Act of 1940, and Schedule K-1 reporting is expected. Shareholders may incur taxable allocations even without receiving cash distributions. The filing also noted that the products have not yet begun trading and have no actual performance record. The issuer warned that investors could lose their entire investment in a day or overnight. Publisher context indicates the SEC approved a related rule change on October 2 allowing Cboe to list six funds delivering three times the daily price moves of their underlying assets, though the primary report's details are specific to VS Trust's bitcoin and ethereum products.
The central issue is the daily reset. The funds are designed to deliver three times the daily return of the underlying asset, not three times its long-term return. Because exposure is reset each day, a fund can lose capital faster during declines, and when a rebound begins, gains accrue on the reduced capital base. As a result, investors may not recover principal even if the underlying asset returns to its starting point. The SEC's investor bulletin illustrated this with an index that rose about 8 percent over four months while a fund tracking three times the daily return posted a 53 percent loss. The example did not involve a bitcoin product, but it demonstrates the structural risk. Conversely, a long, sustained uptrend could compound returns above three times the underlying, so both the end-point and the path of interim price moves materially affect outcomes.
The products also depart from conventional crypto ETFs. Rather than holding spot bitcoin or ether, the funds use futures contracts, which expire and must be rolled repeatedly. Roll-related price differentials can add to costs or benefit investors, meaning fund returns cannot be estimated by simply multiplying spot returns by three. Costs are also material. According to amended filings submitted by VS Trust on Oct. 7, the annual management fee is 1.85 percent for each product, and estimated returns needed to cover expected operating expenses were 1.98 percent for the bitcoin fund and 2.78 percent for the ethereum fund.
Tax treatment differs as well. The products are classified as commodity pool products rather than standard investment company ETFs under the Investment Company Act of 1940, and Schedule K-1 reporting is expected. Shareholders may incur taxable allocations even without receiving cash distributions. The filing also noted that the products have not yet begun trading and have no actual performance record. The issuer warned that investors could lose their entire investment in a day or overnight. Publisher context indicates the SEC approved a related rule change on October 2 allowing Cboe to list six funds delivering three times the daily price moves of their underlying assets, though the primary report's details are specific to VS Trust's bitcoin and ethereum products.
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