- SEC blocks nine high-leverage ETFs, citing Rule 18f-4 violations and investor protection concerns.
- Proposed ETFs amplified returns three to five times, targeting Bitcoin, Ether, Tesla, and Nvidia.
- Ultra-leveraged products risk systemic losses; October’s crypto crash triggered US$20b (AU$30.8b) liquidations.
The US Securities and Exchange Commission (SEC) has blocked several ultra-leveraged ETF applications, issuing nine warning letters on 3 December 2025 to issuers including Direxion, ProShares, and Tidal Financial. The targeted funds were structured to deliver three to five times daily returns on equities, commodities, and cryptocurrencies.
The filings followed the 2024 election, as issuers anticipated a more favourable environment for crypto products. Many sought to launch highly leveraged ETFs tied to volatile assets like Bitcoin, Ether, Tesla, and Nvidia.
The SEC flagged these proposals for likely violations of Rule 18f-4 under the Investment Company Act of 1940, which limits value-at-risk exposure to 200% of a non-leveraged reference portfolio. In its letters, the regulator noted: “The fund’s designated reference portfolio provides the unleveraged baseline against which to compare the fund’s leveraged portfolio for purposes of identifying the fund’s leverage risk under the rule.”
Issuers were told to either revise their strategies or withdraw their filings. Many of the proposed ETFs combined high leverage with daily resets, amplifying both potential gains and losses. Analysts warn such products can heighten systemic risk during volatile periods, as evidenced by October’s crypto market crash, which triggered US$20 billion (AU$30.8b) in leveraged liquidations.
Related: Bitcoin Dips Below $84k, Spot ETFs See Largest Outflow Since February
SEC Signals Leverage Ceiling
The warning letters were posted the same day they were issued, an unusually fast disclosure that underlines the SEC’s urgency. Leveraged ETFs now hold approximately US$162 billion (AU$249.5b) in assets, reflecting the growing retail and institutional appetite for amplified returns.
The SEC’s action signals a clear boundary: daily leverage above 2x is unlikely to gain approval, particularly for products tied to single-name equities or cryptocurrencies. Issuers must decide whether to redesign their ETFs to comply with Rule 18f-4 or abandon the proposals. The move underscores the Commission’s focus on protecting investors and limiting systemic risk in fast-moving markets.
Related: First-Ever Chainlink ETF Set to Debut on NYSE This Week
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