Leveraged Bitcoin ETF Halted: SEC Declines To Approve Valkyrie Fund

The United States Securities and Exchange Commission is refusing to approve the leveraged Bitcoin BTC/USD futures-backed exchange-traded fund proposed by asset manager Valkyrie Investments. 

What Happened: According to a Wednesday Wall Street Journal report, the SEC stated that it will only approve products that provide unleveraged exposure to Bitcoin futures contracts.

Ben Johnson, an analyst at Morningstar, said "this is a product the SEC has long had a case of approver’s remorse around."

The Wall Street Journal pointed out that multiple volatility-linked leveraged ETFs suffered significant losses in 2018 and wiped out billions of dollars in investor assets. Similarly, leveraged products also saw significant losses last year when the pandemic roiled the markets.

The SEC imposed restrictions on how leveraged such products can be, and the regulator's Chairman Gary Gensler said that such concerns remain at the forefront of the issues taken into consideration by the commission.

He said earlier this month that such products “can pose risks even to sophisticated investors, and can potentially create systemwide risks by operating in unanticipated ways when markets experience volatility or stress conditions."

What's Next: It appears, despite the SEC's opposition, the market will still get new ETF-powered leverage opportunities. According to recent reports, the debut of Bitcoin future-backed ETFs on the NYSE American Options exchanges on Wednesday created new ways to take leveraged positions on Bitcoin or hedge positions.