ProShares Withdraws 3x Crypto ETFs Due to SEC Concerns
- ProShares withdraws planned 3x Bitcoin, Ethereum, XRP ETFs after SEC warning.
- SEC highlighted leverage rule violations, affecting crypto market products.
- No sales occurred; financial impact limited to opportunity costs.
ProShares has withdrawn its plans for 3x Bitcoin, Ethereum, XRP, and Solana ETFs after the U.S. SEC’s Division of Investment Management highlighted potential regulatory violations.
This withdrawal may limit high-leverage product availability, influencing speculative trading dynamics in the cryptocurrency market.
ProShares has withdrawn its planned 3x leveraged ETFs for Bitcoin, Ether, XRP, and Solana following a direct warning from the U.S. SEC. These planned funds were challenged due to compliance concerns with existing leverage rules under the Investment Company Act.
The U.S. SEC particularly raised issues about these ETFs not reflecting actual leverage risk, urging ProShares to revise their filing. The SEC’s Division of Investment Management emphasized their non-compliance with the 200% leveraged limit as stipulated by the Investment Company Act.
The withdrawal has ceased the introduction of high-leverage financial products in the U.S. crypto market. This decision assures the market’s adherence to existing regulations on leverage, particularly impacting ProShares’ ambitions in crypto-based derivatives.
Financially, there has been no tangible loss since no capital was raised from these ETFs. However, this limits ProShares from participating in the potential revenue streams of high-leverage crypto investments, constraining their product offerings in this competitive market space.
ProShares’ decision follows a broader regulatory stance on leveraged ETFs, impacting similar financial ventures. This illustrates a strengthened regulatory environment with implications for market players considering high leverage offerings in the ETF segment.
Historically, regulators have enforced limits on leveraging due to volatility risks, underscored by data showing instances of potentially frequent product failures. ProShares must realign strategy under regulatory oversight, adhering to established norms that safeguard consumer investments.
Eric Balchunas, Senior ETF Analyst at Bloomberg, noted, “Our models show that 3x and 5x ETFs on this set of highly volatile underlying assets would have faced frequent mathematical wipeouts, so regulators likely spared issuers and investors from an ongoing cycle of fund terminations.”
