SEC Blocks Multiple 3x and 5x Crypto ETF Filings, Citing Rule 18f‑4 Limits
The U.S. Securities and Exchange Commission (SEC) recently took decisive action to block numerous filings for 3x and 5x leveraged crypto exchange-traded funds (ETFs). This move followed a notable surge in submissions from various asset management firms seeking to capitalize on interest in digital assets and equities. The SEC has formally instructed issuers to either revise their investment strategies or withdraw their applications entirely.
SEC’s Concerns Over Leverage and Risk Management
The SEC’s primary concern centers around compliance with Rule 18f‑4, which strictly regulates funds that utilize derivatives. This rule imposes a limit on the value-at-risk for funds, allowing no more than double the level of a selected benchmark. By attempting to circumvent this rule, some ETF proposals raised red flags for the watchdog body.
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
As noted by Bloomberg analyst Eric Balchunas, the SEC has underscored that increased leverage can lead to heightened market risks, including the potential for instability in trading conditions. The agency cautioned that allowing leverage above 2x might result in frequent termination events for these funds.
Direxion and Other Firms Under Review
The SEC’s scrutiny particularly affects filings from Direxion, which has proposed several leveraged ETFs aimed at providing substantial exposure to crypto assets and high-beta equities. These products, which rely on 3x and 5x leverage, were among those targeted due to their potential to flout existing regulations.
Other firms with similar proposals have also found themselves mired in the review process, particularly as the SEC continues to enforce Rule 18f‑4, which restricts leverage to a maximum of 200% value-at-risk. The watchdog body emphasized that firms must demonstrate compliance with current risk management controls to have their applications considered for approval.
Recent Surge in Leveraged ETF Filings
The uptick in ETF filings accelerated in October, with SEC investment management director Brian Daly noting a significant influx of registration statements proposing 3x and 5x leveraged, equity-linked exposure. Daly pointed out the uncertainty surrounding whether many of these filings would ultimately comply with Rule 18f‑4.
During this period, firms like VolShares submitted proposals for 5x ETFs linked to cryptocurrencies such as SOL, ETH, and XRP. Their plans also included leveraging stocks like Tesla, Nvidia, and Coinbase. Additionally, GraniteShares put forth an application for a 3x fund linked to XRP, reflecting a growing trend toward aggressive investment strategies in the crypto domain.
Morningstar researcher Bryan Armour indicated that over half of the leveraged ETFs launched in recent years have eventually closed. Although the SEC has historically shown some openness to innovative strategies, there’s a prevailing concern that the current crop of filings, especially those involving high leverage, might face a more stringent evaluation process.
