Core Insights - A leveraged ETF tracking MicroStrategy has fallen 65% over the past 12 months, while the company's stock price has risen 28%, highlighting the issue of "volatility decay" [1] - Leveraged ETFs, once seen as a shortcut for higher returns in a bull market, have seen significant investor losses due to misunderstandings of their mechanisms [1][4] - Despite the risks, ETF issuers are continuing to launch new high-leverage products, including potential 5x leveraged funds, as regulatory reviews are paused [1][7] Group 1: Performance Discrepancies - The fundamental reason for the divergence in performance between leveraged ETFs and their underlying assets is the "daily compounding" mechanism, leading to volatility decay [2] - Leveraged ETFs aim to provide a specific multiple of daily returns, not long-term returns, which can erode gains during periods of high volatility [3] Group 2: Investor Experiences - Many retail investors, attracted by social media narratives of quick wealth, have faced significant losses due to a lack of understanding of leveraged ETF mechanics [4][5] - Even when the underlying stock rises, investors in leveraged ETFs can still incur substantial losses due to the compounding effects of volatility [5] Group 3: Market Dynamics - High management fees, typically around 1%, have driven the proliferation of leveraged ETFs, with approximately 200 new leveraged stock ETFs expected to launch by 2025 [7] - Despite the risks and investor losses, asset management firms continue to introduce leveraged ETFs, aiming to capitalize on market trends [7]

Core Viewpoint - A new ETF proposal by Volatility Shares aims to offer a 5x daily return on some of the most volatile assets in the global market, including stocks like Tesla and Nvidia, as well as cryptocurrencies like Bitcoin and Ethereum, marking a significant shift in the regulatory landscape for leveraged products in the U.S. [1][2] Group 1: ETF Proposal Details - Volatility Shares has submitted an application for a fund that targets a 5x daily return, which is unprecedented in the U.S. market where the SEC has historically limited leveraged ETFs to a maximum of 2x [1][2] - The proposed fund will include assets such as Bitcoin, Ethereum, AMD, MicroStrategy, Palantir, and smaller cryptocurrencies like Solana and Ripple [2] - The U.S. ETF market is highly competitive with around 4,500 existing funds, making this proposal a notable strategy to attract investor attention [2] Group 2: Regulatory Environment - The current regulatory environment appears to be more lenient, allowing for the introduction of high-risk financial products, including sports betting and cryptocurrency investment products [1] - The SEC's response to this application may be delayed due to the ongoing government shutdown, which has affected its operations [1][5] Group 3: Market Context and Challenges - In Europe, there are approximately 40 existing 5x leveraged funds with a total asset management size of about $274 million, primarily tracking major indices rather than individual stocks [5] - Despite the potential popularity of the new fund among risk-seeking U.S. investors, there are signs of investor fatigue, as leveraged funds have experienced capital outflows in the past three months [5] - Market makers and swap counterparties may be hesitant to support such high-risk products, which could impact the fund's stability and operational viability [6][7]