Proposed 3x Ethereum ETF Could Reach CME Threshold at $362 Million

Volatility Shares’ proposed 3x Ethereum ETF could reach CME Group’s 8,000-contract accountability level with about $362.1 million in assets if it holds standard Ether futures, based on valuations disclosed Oct. 6.

The fund would trade under the ETHK ticker and seek three times the daily performance of an Ethereum futures benchmark. The Securities and Exchange Commission approved Cboe BZX’s rule change to list the fund on Oct. 2. A first trading date has not been announced.

The calculation uses an estimated $135,800 in notional value for each standard CME Ether futures contract. A fund with $362.1 million in assets targeting three times daily exposure would seek about $1.09 billion in exposure. That amount equals roughly 8,000 contracts if the position were held entirely in standard CME futures.

CME lowered the single-month and all-month accountability level for Ethereum futures to an aggregate 8,000 standard contracts effective March 2. The level is a reporting and monitoring threshold, not an absolute position limit. CME Market Regulation can request information about positions under Rule 560 and can require a participant to stop adding contracts or reduce a position to maintain orderly trading.

Volatility Shares’ existing 3x Ethereum ETF, ETHU, held 19,204 October CME Ether futures contracts worth about $2.61 billion on Oct. 6. The fund had $1.31 billion in net assets on Oct. 5. Its futures position was therefore about 2.4 times CME’s 8,000-contract threshold.

If ETHK uses standard CME Ether futures for its full target exposure, it would hold the equivalent of about 2,209 contracts with $100 million in assets, 11,046 contracts with $500 million and 22,091 contracts with $1 billion. The figures would change with futures prices, investor flows and the fund’s portfolio structure.

CME aggregates positions based on ownership or trading control. The rules include accounts in which a person controls trading or owns at least 10%. Volatility Shares manages both ETHU and ETHK, so CME could treat their positions as one controlled position. In that case, the combined exposure would total about 21,400 contracts with $100 million in ETHK assets, 27,200 contracts with $362.1 million and 41,300 contracts with $1 billion.

The public filings do not establish whether CME would grant ETHK an exemption from aggregation. Such an exemption would allow the fund to be counted separately from ETHU.

ETHK’s filing allows the fund to use later-dated futures, Ether-linked exchange-traded products, exchange-traded options and cash if benchmark futures become unavailable or difficult to use because of accountability levels, exchange position limits, margin requirements, or futures commission merchant limits and risk controls. Those instruments can affect tracking and trading costs.

A three-times fund resets its exposure each day. In a simplified calculation, a fund with $362.1 million in assets would need to trade about $109 million after a 5% daily move in the Ethereum benchmark, before fees, investor flows and other portfolio changes. It would generally buy after a gain and sell after a decline to restore its target exposure.

The CFTC’s Sept. 29 futures-only report listed 27,392 open Ethereum cash-settled futures contracts. ETHU’s 19,204 contracts on Oct. 6 represented about 70% of that earlier figure, although the reporting dates differ.

Volatility Shares’ 3x Bitcoin ETF, BITX, held 6,368 CME Bitcoin futures contracts worth about $2.74 billion on Oct. 6. CME’s Bitcoin accountability level is 5,000 contracts. Using BITX’s disclosed valuation, a three-times Bitcoin fund would reach that level with about $718 million in assets.