Crypto ETF Update: SEC Blocks 3x and 5x ETF Filings, Calls for Major Changes or Withdrawal

The U.S. SEC has pushed back on the leveraged crypto ETFs on its table. They have issued a notice that has managed to stall several filings tied to digital assets and equities.

Why Did the SEC Halt Leveraged Crypto ETF Proposals?

In a new development, the SEC has sent formal notices to issuers attempting to introduce 3x and 5x crypto ETFs.  Bloomberg ETF analyst Eric Balchunas stated that regulators flagged the filings for trying to make use of a loophole to bypass strict “value at risk” constraints.

Looks like SEC is pushing back on all the 3x and 5x filings, calling them out on the loophole they were trying to use, to get around the 200% VAR, and "requests them to revise the obj and strategy to be consistent with 18f-4 or withdrawal" Honestly, it's for the best. I'm as… pic.twitter.com/J8p6o1ND2B

— Eric Balchunas (@EricBalchunas) December 2, 2025

According to Balchunas, the Commission told issuers to either significantly change their strategies to meet current rules or withdraw their applications altogether.

The analyst also said that allowing leverage beyond 2x could lead to a scenario of frequent termination events and high market instability.

Rule 18f-4 was created to set strict risk controls for funds that use derivatives. It limits the value-at-risk to 200%. That means no fund can exceed twice the risk profile of its chosen benchmark. It also requires funds to have a documented risk program and to monitor their risks continuously.

The filing particularly singles out Direxion. They submitted filings for leveraged ETFs tied to crypto assets and high-beta stocks. The SEC said this notice also affects leveraged single-stock strategies and sector-based products. 

Just yesterday, the SEC Chair Paul Atkins announced that the agency plans to publish new rules for innovation exemptions next month. Atkins has always said that the Commission will support digital asset procedures.

Leveraged ETF Filings Surged During Shutdown

In October, the director of the SEC’s investment management division, Brian Daly, said that the agency saw filings or 3x and 5x leveraged ETFs at a fast rate.

“The agency has received a large number of registration statements for ETFs seeking to offer 3x and 5x leveraged, equity-linked exposure,” he said. “It is still unclear whether such ETFs would be consistent with the Derivatives Rule, Rule 18f-4, which generally limits leverage to 2x.” 

VolShares filed for 5x crypto ETF products for SOL, ETH, and XRP in the same month. They also filed alongside leveraged plays on key tech stocks like Nvidia, Tesla, and Coinbase. GraniteShares also entered the race with a 3x XRP ETF filed earlier in the same month.

However, Morningstar ETF researcher Bryan Armour pointed out that more than half of the leveraged ETFs launched over the last three years have closed. He said the SEC leadership at this point has been very open to new market strategies but that could change on these products.

“This SEC administration has been more amenable to new strategies coming to market but 5x leveraged single-stock ETFs will test those limits,” he said.