A Look At U.S. SEC’s Crackdown on High-Leverage ETFs

U.S. Securities and Exchange Commission (SEC) has indeed escalated its oversight of leveraged exchange-traded funds (ETFs), issuing warning letters on December 2, 2025, to nine major providers including Direxion, ProShares, Tidal Financial Group, GraniteShares, and Volatility Shares.

This action effectively halts the approval process for new ETFs seeking to deliver 3x to 5x daily exposure to volatile assets like individual stocks like Tesla, Nvidia, commodities, or cryptocurrencies such as  Bitcoin, Ethereum.

The SEC’s primary concern is that these products could exceed the 200% leverage limit under Rule 18f-4 of the Investment Company Act of 1940, which caps a fund’s risk exposure relative to its assets. In response, ProShares withdrew its applications for 3x leveraged Bitcoin, Ethereum, Solana, and XRP ETFs the following day.

This move comes amid heightened market volatility, where leveraged ETFs have already caused significant investor losses in 2025. For instance, funds tracking Strategy Inc. formerly MicroStrategy with 2x leverage on its Bitcoin-heavy portfolio have plummeted over 85%, wiping out $1.5 billion in assets from peaks of $2.3 billion.

Broader leveraged ETF assets have swelled to $162 billion since the pandemic, but critics argue they lure retail investors into opaque, high-risk products prone to “volatility decay”—where daily rebalancing erodes value even in sideways markets.

No 3x or 5x single-stock or crypto ETFs currently exist in the U.S., and this pause reinforces the 2x ceiling, prioritizing investor protection over speculative innovation. On X, traders are calling it a “leverage kill,” with some viewing it as overdue regulation after “billion-dollar collapses.”

Grayscale’s Chainlink ETF: Strong Debut InflowsIn a contrasting bright spot for crypto ETFs, Grayscale’s Chainlink Trust ETF (ticker: GLNK)—the first U.S.-listed spot ETF providing direct exposure to Chainlink’s (LINK) oracle network—launched on NYSE Arca on December 2, 2025, and posted robust day-one net inflows of approximately $41 million.

This figure aligns with reports from Grayscale’s CEO Peter Mintzberg and data trackers like SoSoValue, bringing the fund’s total assets under management to around $64-67.5 million including seed capital. Trading volume hit $13 million on debut, signaling solid institutional and retail interest in Chainlink’s role in tokenization and cross-chain infrastructure.

The inflows propelled LINK’s price up over 7% in the 24 hours following launch, reaching $14.40-$14.50 and breaking out of a descending channel pattern. Whale activity amplified the momentum, with 9.94 million LINK tokens $188 million worth moved from Binance, alongside tightening supply from locked reserves.

Grayscale’s Head of Research highlighted Chainlink’s centrality to the “tokenization revolution,” projecting a multi-trillion-dollar market in 5-20 years. Cumulative inflows since launch stand at $40.9-41.5 million, outpacing some expectations for an altcoin ETF amid broader market caution.

On X, the buzz is positive, with posts hailing it as a “clear signal of broader market demand” and a step toward mainstream adoption. These developments highlight a bifurcated regulatory landscape.

The SEC is tightening the reins on amplified-risk products to shield retail traders from wipeouts, while greenlighting or at least not blocking straightforward spot crypto ETFs like GLNK, which now joins Grayscale’s lineup for BTC, ETH, SOL, and DOGE.

For investors, this could steer capital toward unleveraged exposure in assets like LINK, potentially stabilizing altcoin narratives around utility rather than hype. LINK’s surge suggests ETF access is a tailwind, but watch for whale profit-taking near $16.60 resistance.

Overall, it’s a reminder that in crypto’s maturing ecosystem, regulated inflows may trump unregulated leverage for sustainable growth.