SEC Flags Risks in High-Leveraged and Crypto ETFs as Industry Expansion Accelerates

The U.S. Securities and Exchange Commission has issued fresh warnings to issuers of highly leveraged exchange-traded funds—including several proposed crypto ETFs—over growing concerns about the risks these products pose to investors. In letters sent Tuesday, the SEC paused ongoing reviews of multiple ETF applications until issuers address the regulator’s questions. The move affects nine firms, including ProShares, which already operates leveraged crypto ETFs in the U.S. market.

According to the SEC, funds seeking to deliver more than 200% leveraged exposure to an index, security, or digital asset carry significant potential for amplified losses in volatile markets. While traditional ETFs simply track the price of an underlying asset, leveraged ETFs use debt and derivatives to multiply gains. This structure also magnifies downside risk, making them far more complex and potentially unsuitable for average investors. The regulator emphasized that issuers must further evaluate and justify the safety and structure of such offerings before they can be listed on national exchanges.

The warnings arrive at a time when leveraged crypto ETFs have been gaining momentum. Several products offering boosted exposure to Bitcoin-related equities—such as Nasdaq-listed Bitcoin treasury strategies tied to the company formerly known as MicroStrategy—have already come to market. Defiance also filed to introduce 49 triple-leveraged long and short ETFs spanning technology stocks, crypto-focused companies, gold, and digital assets including Bitcoin, Ethereum, and Solana.

The broader ETF ecosystem continues to expand rapidly following the success of spot Bitcoin and Ethereum ETFs approved last year. BlackRock’s iShares Bitcoin Trust (IBIT) has grown at a record pace and now holds roughly $70 billion in assets. Collectively, the 11 U.S. spot Bitcoin ETFs oversee about $122 billion.

Meanwhile, Grayscale recently launched the first U.S. Chainlink ETF, GLNK, following the conversion of its private trust into a publicly traded product backed solely by LINK. Additional crypto-themed funds tracking XRP, Solana, Dogecoin, and Chainlink have also debuted in recent weeks, signaling continued investor demand despite heightened regulatory scrutiny.