SEC approves first 3x bitcoin and ether ETFs in the U.S.

These funds must rebalance every day to keep leverage pinned at 3x. That forces them to buy more futures after gains and sell more after losses—mechanical flows that usually hit near the close and can amplify intraday moves. The bigger the fund grows, the bigger the impact. The same daily reset also means multi-day returns can drift far from 3x, sometimes in the opposite direction.

Blockstream CEO Adam Back put it more bluntly: “Auto re-leveraging strategies bleed capital in a sideways chop, especially with a high volatility underlying… like bitcoin,” he said.

That bleed is known as volatility decay. Say bitcoin rises 10% one day and falls 10% the next. It ends down 1%. A 3x fund would gain 30%, then lose 30%, ending down 9%. The more price whipsaws back and forth in a range without a consistent directional trend, the more the leveraged product underperforms and bleeds capital.

Volatility Shares itself flags the risk. “The more volatile the benchmark, the greater the potential for volatility decay,” the company said in its preliminary prospectus filed as part of a Form S-1 registration statement.

The filing is also blunt about who should trade these.

“An investment in 3x Bitcoin ETF is not suitable for all investors, may be deemed speculative, and should be considered only by persons who can bear the risk of total loss associated with an investment in 3x Bitcoin ETF,” it said.