Volatility Shares submits application for 5x leveraged encryption ETF: Bitcoin, Ethereum, XRP included, does the application automatically take effect during SEC shutdown?

A few days after regulators tested their tolerance for high-leverage products, Volatility Shares submitted a series of ETF proposals aimed at providing five times (5x) daily returns on a range of assets including Bitcoin and Ethereum. Due to the U.S. Securities and Exchange Commission (SEC) being shut down for over a week because of the government shutdown, these aggressive applications may take effect under automatic approval rules. This move is not only aggressive but also represents the latest probe into the SEC's new regulatory framework, although the potential risks of ultra-high leverage products for retail investors have sparked significant controversy.

The Most Aggressive ETF Application in History: Challenging the SEC's 2x Leverage Limit

The proposal for a 5x leveraged ETF submitted by Volatility Shares is unprecedented and directly challenges the restrictions imposed by the SEC on leverage for individual stocks and highly volatile assets.

· 5x leverage covered assets

Volatility Shares has submitted a filing to launch a fund that aims to provide five times (5x) daily returns, covering some of the most volatile assets in the global market, including individual stocks like Tesla Inc. and Nvidia Corp., as well as cryptocurrencies like Bitcoin and Ethereum.

· Probe into SEC regulatory system

Currently, there are no single stock ETFs in the U.S. with 5x or even 3x leverage, as SEC rules have long restricted such risk exposure.

The actions of Volatility Shares are not only aggressive but also unprecedented. It is seen as the latest high-risk probe into the current regulatory environment, which has previously allowed for sports betting on exchanges and retail-friendly crypto funds.

· Other cryptocurrencies are also covered

The proposed fund also includes other mainstream cryptocurrencies such as Solana and Ripple's XRP, as well as stocks from Advanced Micro Devices Inc., Strategy Inc., and Palantir Technologies Inc.

Market Demand and Potential Risks: Investor Fatigue and Liquidation Risks Coexist

Despite the potential appeal of 5x leveraged products to high-risk-tolerant American investors, they pose significant risks to the financial system and retail investors, and face barriers to market execution.

· Competitive ETF market

In the increasingly competitive ETF market in the United States, this move is a striking way. There are currently about 4,500 funds in the market.

· Precedent in the European Market

Data compiled by Bloomberg ETF analyst Henry Jim shows that there are about 40 five-times leveraged funds in Europe, with an asset size of approximately $274 million, but they mainly track indices and none track a single stock.

· Potential Risks for Retail Investors

The surge in ultra-high leverage products has reignited the debate about their pros and cons. Critics warn that many retail investors may overlook the risks associated with these “turbocharged” funds. Investors need to be “very careful” if the market experiences a pullback.

The support of market makers is key.

Mohit Bajaj, the ETF director at WallachBeth Capital, stated that another obstacle is whether market makers and swap counterparties will support such products.

Due to the risks, capital requirements, and regulatory impacts brought about by a fivefold increase in risk exposure, banks may remain cautious. The derivatives offered by these financial institutions are key to the operation of leveraged funds.

The Possibility of “Automatic Effectiveness” Under SEC Shutdown

Due to the U.S. government shutdown, the SEC is in a closed state, which provides a special time window for the aggressive application of Volatility Shares.

· Government Shutdown and Submission Process

The SEC stated in an announcement on September 30 that investment companies can continue to submit filings during the shutdown, and that under certain rules, the filings will automatically take effect after a set deadline until the regulatory agency resumes operations.

· Capital Operation Mechanism

The fund plan proposed by Volatility Shares aims to achieve five times the daily return of its underlying assets through various “financial instruments” such as swaps and options, and achieves this fivefold return through daily rebalancing of positions.

Conclusion

Volatility Shares submitted a fivefold leveraged ETF application during the SEC suspension, which undoubtedly represents an extreme test of the regulatory bottom line for both the crypto and traditional financial markets. Although such ultra-high leveraged products can attract investors with a high-risk appetite, they pose significant potential risks to retail investors. This indicates that financial innovation is challenging traditional boundaries at an astonishing pace, driven by evolving regulatory environments and investor demand. The next steps in the market will depend on the SEC's attitude toward these unprecedented applications and whether market makers are willing to take on the associated risks.

This article is news information and does not constitute any investment advice. The crypto market is highly volatile, and investors should make cautious decisions.