- SEC warns 3x leveraged ETFs may not track true market risk, prompting ProShares to halt launches.
- Bloomberg data shows extreme volatility could quickly wipe out 3x products across crypto and stocks.
- Analysts note 3x and 5x ETFs may face frequent termination events due to amplified daily swings.
ProShares has paused the launch of its full lineup of 3x leveraged crypto and technology ETFs after the regulator asked the company to amend or delay its filings. The products were designed to give traders 3x daily exposure to Bitcoin, Ether, XRP, Solana and several large technology stocks. The firm suspended the plan once the regulator said the products may not reflect the extreme volatility of the assets they track.
Regulator Raises Concerns About Tracking and Leverage Limits
The Division of Investment Management sent a formal letter to the company detailing its concerns. The letter stated that products that aim to reach more than 200% daily leverage rarely match the actual risk in the market. It also noted that the proposed funds did not track the securities or indices they were meant to follow.
The letter enclosed a list of Daily Target 3x ETFs that would need changes before any approval. The list included 3x Bitcoin, 3x Ether, 3x XRP and 3x Solana products. It also included 3x funds tied to companies such as Amazon, Google, Nvidia, Coinbase, MicroStrategy, Palantir and Tesla.
A similar pullback happened when another issuer canceled planned XRP, Solana and Litecoin ETFs. The move added pressure across the industry as firms reviewed the future of leveraged structures.
Market Data Shows High Volatility Across Proposed Products
Bloomberg Intelligence shared research that supported the concerns. The analysis found that 3x leverage across single-stock ETFs and small volatile companies had a high chance of failure. The team identified 66 stocks that were listed for future 3x products.
Data from the past five years showed more than 350 trading sessions where at least one of those stocks moved 33% in a single day. This level of movement can mathematically wipe out a 3x product. About 40 of the 66 stocks crossed the threshold at least once.
Eric Balchunas, a senior analyst at Bloomberg, said the team found enough data to suggest that 3x and 5x crypto ETFs would have faced regular termination events. He added that issuers may be relieved as the products would have created complex regulatory duties. The latest withdrawal places new attention on leverage structures as traders and issuers review the risk of amplified exposure in a volatile market.
