ProShares Withdraws 3x Leveraged Crypto and Tech ETFs After SEC Raises Risk Concerns

ProShares has withdrawn all its 3x leveraged tech and crypto ETFs after the SEC raised concerns that the funds didn’t properly account for the extreme price swings of the underlying assets.

The withdrawn crypto ETFs included its Daily Target 3x ETFs for Bitcoin, Ether, XRP, and Solana. It also scrapped the 3x fund for major stocks such as Amazon, Coinbase, Circle, Google, MicroStrategy, Nvidia, and Tesla.

The SEC’s Division of Investment Management sent a letter to ProShares warning that  ETFs aiming for more than 200% leverage are unlikely to reflect the true risk. The letter also noted that the funds were not properly tracking the securities or indexes they were supposed to follow, meaning several Daily Target 3x ETFs would need changes before approval.

A similar situation happened when CoinShares canceled its planned XRP, Solana, and Litecoin ETFs, indicating growing doubts about leveraged ETF products.

Bloomberg Flags Risks in 3x Single Stock ETFs

According to Bloomberg, regulators stepped in because 3x leveraged ETFs tied to single stocks and smaller volatile companies are very risky and likely to fail.

Bloomberg also identified 66 stocks planned for future 3x ETFs and found that over the past five years, there were more than 350 days when at least one of the stocks moved by 33% in a single day.

A price move that big could completely wipe out a 3x leveraged ETF, whether crypto or another type. About 40 of the 66 stocks hit that level at least once, showing that the risk of a total collapse was real, not just theoretical.

According to Eric Balchunas, the Senior ETF analyst at Bloomberg, if 3x and 5x crypto ETFs had been approved, one of them would have likely collapsed every week on average. He noted that data shows that even 2x single-stock ETFs already “have plenty of extreme volatility”, which makes 3x and 5x ETFs even riskier.