U.S. SEC Rejects Valkyrie's Leveraged Bitcoin Futures ETF

Jafrin  |  Oct 28, 2021

The U.S. Securities and Exchange Commission (SEC) has reportedly rejected Valkyrie's leveraged Bitcoin ETF alongside Direxion Bitcoin Strategy Bear ETF, signaling that the regulator is not yet ready for those that provide leveraged exposure to bitcoin futures.

U.S. SEC Rejects Leveraged Bitcoin Filings

According to the Wall Street Journal, the U.S. Securities and Exchange Commission has rejected a bitcoin exchange-traded fund just a day after Valkyrie filed for a leveraged Bitcoin futures ETF and Direxion applied for an inverse fund for bears.

On Oct. 26, Direxion filed for a Bitcoin Strategy Bear ETF that enables speculators to buy futures that short the price of Bitcoin. The same day, Valkyrie filed for a leveraged BTC futures ETF that would have offered up to 1.25x exposure to the digital asset.

While Direxion products would have only invested in futures, Valkyrie would have held futures, swaps, options, and forwards. Reportedly, SEC is currently only interested in direct futures product funds that buy contracts from the Chicago Mercantile Exchange (CME).

At the moment, the regulatory agency is not interested in approving any products that invest in the asset itself or anything other than CME futures contracts to limit investor exposure to offerings that are deemed vulnerable to fraud, manipulation, and other risks.

SEC Finds Leveraged ETFs Risky Even for Sophisticated Investors

Direxion initially filed for a Bitcoin ETF in 2018, but it ended up in the pending files with others that the SEC had delayed at the time. Ben Johnson, an analyst at Morningstar, commented on SEC’s on-again, off-again issues with leveraged ETFs, saying:

“This is a product the SEC has long had a case of approver’s remorse around. These products tend to get quite a lot of attention for all the wrong reasons.”
Earlier last month, SEC Chair Gary Gensler said that ETFscan pose risks even to sophisticated investors, and can potentially create systemwide risks by operating in unanticipated ways when markets experience volatility or stress conditions.”

At the same time, the agency this month approved two new ETFs that allow investors to make leveraged or inverse bets on futures contracts on the Cboe Volatility Index or VIX.

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