SEC Halts 3x/5x Crypto ETFs Amid Market Stability Concerns

The U.S. Securities and Exchange Commission has intervened to block Leveraged crypto ETF proposals, citing systemic risks. Firms including Direxion faced regulatory pushback after attempting to launch 3x and 5x leveraged products tied to digital assets. The SEC's enforcement of Rule 18f-4—which caps derivative-based fund leverage at 2x—effectively closed a loophole some issuers sought to exploit.

Bloomberg Intelligence analyst Eric Balchunas noted the SEC's firm stance: 'They're calling out attempts to circumvent volatility safeguards.' The decision reflects growing scrutiny of high-risk crypto investment vehicles following 2025's market turbulence. Regulators specifically warned that extreme leverage could trigger cascading liquidations during price swings.

The crackdown comes as ETF filings reached record levels this quarter. While standard Bitcoin and ether ETFs continue trading, the SEC appears determined to prevent leveraged products from amplifying crypto's inherent volatility into traditional markets.