Volatility Shares Trust Seeks Leveraged Bitcoin ETF Approval

Volatility Shares Trust is still targeting a June 13 launch for its 2x Bitcoin Strategy ETF (BITX), a leveraged bitcoin futures exchange-traded fund filed for on March 29 with the SEC, despite increased regulatory scrutiny of crypto exchanges. 

The ETF would use derivatives to emulate the daily returns of Bitcoin futures trading on CME. While there are bitcoin futures ETFs, such as the ProShares Bitcoin Strategy ETF (BITO), and leveraged ETFs for other types of assets, this would be the first leveraged ETF tracking bitcoin futures.  

Like other leveraged ETFs, it would seek to replicate only each individual day’s returns, not the returns over any longer period, making it unsuitable as a long-term holding. 

ProShares had also filed to bring a leveraged bitcoin ETF to market, but withdrew its filing earlier this month. 

The SEC launched suits against cryptocurrency exchanges Binance and Coinbase, showing unprecedented willingness to push back against crypto industry players. The agency has also traditionally been wary of leveraged ETFs, and vetoed combinations of these financial products with cryptocurrency.  

Aisha Hunt, founder and principal at Kelley Hunt & Charles, which specializes in securities law related to exchange-traded funds, isn’t so sure Volatility Shares will meet its launch date goal.  

“Between the major regulatory crackdowns on Binance and Coinbase, and the withdrawal of the ProShares fund, it doesn’t bode well for the product being greenlit by the SEC,” she told etf.com.  

While Hunt didn’t see any particular issues with the ETF meeting particular legal regulatory requirements, the risk and complexity of leveraged ETFs combined with exposure to bitcoin may be too much for the SEC to be comfortable with. 

The agency has long been wary of potential issues and risks associated with complicated products like leveraged ETFs. Previous efforts to file to open leveraged bitcoin ETFs from Valkyrie Funds and Direxion were blocked by the SEC in 2021.  

However, Volatility Shares has some experience acquiring approvals for complex leveraged ETFs, including leveraged ETFs that trade the VIX volatility index. 

If Volatility Shares manages to get approval, it will benefit from the first-mover advantage in the space, putting any other leveraged bitcoin ETFs at a disadvantage. Belief that Volatility Shares had beat it to launch may be behind ProShares’ withdrawal.  

Eric Balchunas, senior ETF analyst at Bloomberg, opined on Twitter that that is his theory about ProShares’ fund, invoking the words of Will Ferrell’s character in “Talladega Nights” in a GIF: “If you’re not first, you’re last.” 

Contact Gabe Alpert at [email protected]