Introduction

The U.S. Securities and Exchange Commission (SEC) recently acknowledged uncertainty over whether it will approve a flood of new ETF proposals seeking 3× and even 5× leverage. The announcement comes at a tense time: asset managers have filed aggressively for these products, while regulatory scrutiny and myriads of compliance questions hang in the balance.

The Surge of Leveraged ETF Filings

Volatility Shares has led the charge by filing proposals for 27 highly leveraged ETFs, including what would be the first-ever U.S. 5× single-stock ETF. These filings span major tech names such as Tesla, Nvidia, Amazon, and firms like Strategy (a bitcoin-treasury company).

Under the new filings, some ETFs aim to deliver 5× daily returns on underlying assets - a massive expansion beyond the traditional 2× leverage cap historically allowed by regulators.

The filings are timed with the ongoing U.S. government shutdown, which has constrained SEC staffing and delayed reviews.

SEC’s Position & Rule 18f-4 Constraints

The SEC has expressed doubt about whether these new products would satisfy Rule 18f-4, which restricts leverage in ETFs to protect investors. Brian Daly, director of the SEC’s Division of Investment Management, stated that the commission finds it “unclear” if the filings comply with existing derivative and leverage rules.

Because of the shutdown, the SEC has not been able to fully review the registration statements.

Risks & Market Implications

Highly leveraged ETFs magnify both gains and losses. In volatile markets, they can exacerbate sharp price swings and forced liquidations. Indeed, JPMorgan estimates that about $26 billion in leveraged ETF selling contributed to recent market drops.

History provides cautionary examples: more than half of leveraged ETFs launched over three years ago have shut down, and 17 % lost more than 98 % of their value.

Some analysts warn that overenthusiastic leverage could backfire severely if not managed carefully.

What the Delay Means for Investors & Industry

For asset managers and ETF issuers, the SEC’s ambiguity means that many proposed leveraged products may be scaled back, delayed, or rejected altogether.

Retail investors should be cautious. Approval is not guaranteed, and the regulatory lens will be sharp. Products that slip through could carry extreme risk.

Some firms may try to structure around leverage limits (e.g., using derivatives, swaps, or more frequent rebalancing), but those methods themselves will attract scrutiny.

Conclusion

The SEC’s statement that it is “unclear” whether 3× or 5× leveraged crypto ETFs will be allowed marks a pivotal moment in how far leverage can stretch in U.S. markets. The filings from Volatility Shares and others push the envelope - but regulatory compliance, risk control, and oversight remain major barriers. For now, the fate of ultra-leveraged crypto ETFs remains uncertain.