Yeliz Akmaca 
The U.S. Securities and Exchange Commission (SEC) has halted filings for 3x and 5x leveraged cryptocurrency ETFs, drawing significant attention in the market. Regulators noted that some issuers attempted to exceed the risk limits set under Rule 18f-4. Bloomberg ETF analyst Eric Balchunas said, “The SEC has made it clear to issuers that they must either significantly revise their strategies or withdraw their filings entirely.” This move serves as a high-risk warning for investors.
Why Were the Filings Halted?
The SEC highlighted that leverage above 2x could trigger frequent fund terminations and create significant market volatility. Balchunas added, “The analyst also stated that allowing leverage above 2x could result in frequent termination events and a highly unstable market scenario.” Rule 18f-4 caps the value-at-risk at 200% and requires derivative-based funds to continuously monitor their exposure.
Direxion’s leveraged crypto ETFs and high-beta equity products were specifically affected by this notice. The SEC also issued a warning covering single-stock and sector-based leveraged ETF filings. “This step is a critical measure to prevent unnecessary risk in the market,” experts commented.
Rising Applications and Investor Concerns
In October, SEC’s Investment Management Division director Brian Daly noted a sharp increase in filings for 3x and 5x leveraged ETFs. Daly said, “The agency has received a large number of registration statements for ETFs seeking to offer 3x and 5x leveraged, equity-linked exposure. It is still unclear whether such ETFs would be consistent with the Derivatives Rule, Rule 18f-4, which generally limits leverage to 2x.”
VolShares offered 5x leveraged products for SOL, Ethereum, and XRP, while GraniteShares submitted a 3x XRP ETF filing. Morningstar ETF researcher Bryan Armour noted, “More than half of leveraged ETFs launched over the past three years have closed,” highlighting the inherent risks. However, Armour also said the SEC has been relatively open to innovation and new strategies.
Key Takeaways
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Filings for 3x and 5x leveraged crypto ETFs have been halted.
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Rule 18f-4 limits value-at-risk to 200%.
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SEC instructed issuers to revise strategies or withdraw filings.
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Direxion, VolShares, and GraniteShares’ applications were affected.
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Leverage above 2x could increase fund terminations and market volatility.
SEC’s decision to halt 3x and 5x leveraged crypto ETF filings serves as a critical warning for investors. Analysts emphasize that products with leverage above 2x may face heightened market fluctuations and sudden fund liquidations. This development urges both institutional and retail investors to reassess risk management strategies. Additionally, regulations under Rule 18f-4 make long-term sustainability for high-leverage ETFs challenging. Investors should consider these new market dynamics and regulatory limits when planning their strategies.
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