A warning has emerged that investors in 3x leveraged exchange-traded funds (ETFs) may not recover losses even if bitcoin rebounds.

On Oct. 10, blockchain outlet CryptoSlate reported that risks inherent in the product structure are again coming into focus after the U.S. Securities and Exchange Commission approved listing rules for asset manager VS Trust's 3x bitcoin and ethereum fund.

The key point is that the products are designed to target three times the daily return, not the long-term return, of the underlying assets. Because the funds reset exposure each day, even correctly calling bitcoin's longer-term direction does not guarantee the same return.

Even if bitcoin rebounds after a drop, the fund's return can move differently from the underlying asset. During declines, leverage reduces fund capital more quickly and the fund cuts exposure to meet its target multiple. When a rebound starts, gains accrue on the reduced capital, meaning investors may not recover principal even if the underlying returns to its starting point.

In an investor bulletin, the SEC cited a case in which an index rose about 8 percent over four months, but a fund tracking three times the daily return posted a 53 percent loss. The example is not about a bitcoin product, but it illustrates risks from the daily reset structure.

Conversely, if an uptrend lasts for a long time, compounding effects could push cumulative returns above three times. Still, under this structure, not only the final price direction but also the path of interim price moves has a large impact on performance.

The product structure also differs from typical products. Rather than holding bitcoin and ethereum spot directly, the funds use futures. Futures have expiries, requiring contracts to be rolled repeatedly, and price differences in the process can increase costs or work in investors' favor. As a result, investors cannot simply multiply spot bitcoin returns by three to estimate fund returns.

Cost burdens are also significant. According to amended filings submitted by VS Trust on Oct. 7, the annual management fee for each product is 1.85 percent. Estimated returns needed to cover expected operating expenses were presented as 1.98 percent for the bitcoin fund and 2.78 percent for the ethereum fund. Even if investors call the market direction correctly, returns must exceed costs to translate into actual profit.

Tax treatment also differs from typical ETFs. The product is classified as a commodity pool product, not a standard investment company ETF under the Investment Company Act of 1940, and Schedule K-1 tax reporting is expected. Shareholders may incur taxable allocations even without receiving cash distributions.

The two products have not yet begun trading. A filing on Oct. 7 said the decision opened a path to listing and that there is no actual performance record. The issuer warned that investors could lose their entire investment in a day or overnight.

With the approval, 3x leveraged bitcoin and ethereum products have moved one step closer to listing. It has also become clearer that what investors buy is a product that includes daily resets, futures roll costs and a tax structure, not simply a bet on price direction.