SEC moves to rein in high-leverage ETFs…sparking ‘consistency’ debate as crypto ETFs proliferate

The U.S. Securities and Exchange Commission (SEC) is tightening regulation of high-leverage exchange-traded funds (ETFs). The move is fueling a debate over the consistency of the SEC’s regulatory standards, given that it has approved a series of ETFs backed by cryptoassets (cryptocurrencies).

On the 6th (Korea time), Bloomberg reported that the SEC recently met with leveraged-ETF issuers and asked them not to launch 5x leveraged single-stock ETF products for the time being.

The SEC has, for about the past five years, limited leverage for single-stock ETFs to around 2x.

Still, critics say the SEC’s approach to ETF regulation lacks consistency. That is because the SEC has recently continued to approve spot ETFs backed by cryptoassets in an effort to broaden access to them.

In the U.S., spot ETFs have emerged not only for Bitcoin (BTC) and Ethereum (ETH), but also for relatively volatile altcoins such as Solana (SOL), XRP (XRP), and Dogecoin (DOGE).

On this, Bloomberg said the SEC is trying to reduce the risk of investors being forced into liquidation when trading high-leverage ETFs, explaining that even if the underlying asset is volatile, liquidation risk is lower when leverage is limited—but with a 5x leveraged ETF, there is a risk of liquidation even if the underlying moves by just 20%.

Nate Geraci, president of NovaDius Wealth Management, said, “The line between investing and gambling continues to blur,” adding that “high-leverage products are making it harder for regulators to draw the line.”