SEC Halts ProShares’ 3× Bitcoin, Ether, Solana, XRP Funds

The SEC just slammed the brakes on leveraged crypto ETFs—again. ProShares' triple-leverage Bitcoin, Ethereum, Solana, and XRP funds won't see the light of day. At least, not yet.

Regulatory Roadblocks

It's the same old story. The SEC cites investor protection concerns, market manipulation risks, and the usual laundry list of crypto-related anxieties. They're not convinced the underlying markets are robust enough to support 3x daily returns—especially for the more volatile altcoins in the mix.

What This Means for Traders

For the leverage-hungry crowd, it's back to futures markets and offshore platforms. The dream of easy, regulated 3x exposure to Solana or XRP via a familiar ETF wrapper just got deferred. It highlights the ongoing gap between crypto's breakneck innovation and the regulator's cautious, methodical pace.

A Familiar Pattern

This isn't ProShares' first rodeo, and it won't be the SEC's last 'no.' The dance continues: fund issuers push for innovative products, regulators pump the brakes, and traders are left waiting. Some call it prudent oversight; others see it as innovation stifled by bureaucracy. Either way, it's another chapter in the long, drawn-out saga of crypto's integration into mainstream finance—where every step forward seems to require two forms in triplicate and a 60-day comment period.

So, for now, triple your crypto gains the old-fashioned way: take on massive risk elsewhere. The SEC clearly isn't in the business of making speculative trading easier—unless, of course, it's in a market they've already blessed and where the big banks have their seats firmly planted at the table.

Violating risk and leverage rules

The SEC ordered ProShares to amend its filings to come into compliance or withdraw altogether, acknowledging that no funds can continue with the approval process until the adjustments are made.

The decision comes after the regulatory body concluded that the triple-leverage structure violates current rules put in place to contain the risk exposure of such funds.

3× amplification on digital assets

The proposed funds from ProShares WOULD have given investors 3× leverage on the daily performance of various key digital assets: 3× Bitcoin, 3× Ether, 3× Solana, and 3× XRP. This structure amplifies gains and losses threefold.

The regulator has increasingly focused its efforts on protecting retail investors from the volatility and complexity associated with highly leveraged and inverse funds, particularly those that track the notoriously volatile cryptocurrency market.

The SEC has traditionally taken a very conservative approach toward cryptocurrency-related investment products. Though the regulator eventually approved Bitcoin futures ETFs, including an offering from ProShares itself, and subsequently approved spot Bitcoin ETFs, it has regularly voiced grave concerns regarding highly leveraged products in the crypto space.

Reason behind the rejection 

The regulatory environment in the United States places particular constraints on how much leverage a fund can employ, especially those marketed to a broader investment base. Products offering 2× leverage are sometimes allowed. However, the 3× multiplier exceeds the threshold for the SEC’s mandate to protect investors, as they could greatly increase potential losses in the event of a market downturn. 

This decision is consistent with the regulator’s broader pattern of closely monitoring products that bring risk, complexity, or volatility into the realm of traditional investments.

In rejecting these 3× leveraged crypto funds, the SEC made crystal clear what it wanted the industry to understand: very aggressive leverage structures in cryptocurrency ETFs are simply off the table at this time.

Implications for ProShares and future products

ProShares must now decide whether to relaunch the funds with a compliant leverage ratio or to transition into non-leveraged or inverse products. 

The decision also implies that other asset managers considering similar triple-leveraged crypto products will likely face the same regulatory roadblock.

The action does mark the persistence of the SEC’s caution regarding direct or highly magnified exposure to the crypto market within standard regulated exchange vehicles. In other words, while digital assets continue to gain favor, the regulatory oversight on financial engineering that amplifies risk remains strict. 

The market’s demand for highly leveraged crypto products will not be satiated via regulated ETF channels until such a time that asset managers can propose products in accordance with the Commission’s tough investor protection standards.

Also Read: Hester Peirce Says SEC Makes 180-Degree Turn on Crypto Policy