SEC Approves SUI-Linked Leveraged ETF Amid Ongoing Crypto Leverage Concerns

The U.S. Securities and Exchange Commission (SEC) has greenlit a leveraged exchange-traded fund (ETF) connected to the SUI token, allowing investors to engage with the Sui ecosystem in a high-risk environment marked by heightened leverage concerns in cryptocurrency markets.

Key Takeaways

SEC Approval of Leveraged ETF: The SEC approved a 2x leveraged ETF for SUI from 21Shares, enabling increased exposure to the Sui ecosystem.
ETF Details: Trading under the ticker TXXS on Nasdaq, this fund aims to double daily returns of SUI, using derivatives instead of holding the actual tokens.
Risk of Leverage: The ETF could amplify both gains and losses, highlighting ongoing debates over leverage in the crypto space, especially after significant market sell-offs.
Rapid Market Changes: Recent market activities show substantial price swings influenced by leverage, leading to major losses for traders.

SEC Approves SUI-Linked Leveraged ETF Amid Ongoing Crypto Leverage Concerns

The SEC's Approval and the Launch of the SUI ETF

The U.S. Securities and Exchange Commission (SEC) has recently approved a leveraged exchange-traded fund (ETF) tied to the SUI token created by 21Shares. This approval allows investors to attain increased exposure to the Sui ecosystem, even as concerns about leverage risks in cryptocurrency markets remain prevalent.

On Thursday, the Sui Foundation revealed that 21Shares has introduced its 2x leveraged SUI ETF, which will trade under the ticker TXXS on the Nasdaq. This fund is specifically designed to deliver twice the daily return of SUI, providing a method for investors to achieve leveraged exposure without needing to own the cryptocurrency directly.

For instance, if the price of SUI increases by 10% in a single day, the ETF is expected to rise by approximately 20%. However, it's important to note that losses on the downside are similarly amplified.

Instead of holding SUI tokens, this fund utilizes derivatives, such as swaps and other financial contracts, to observe the price fluctuations of the token.

Source: Sui Network

Prior to this, the SEC had been cautious in approving high-leverage crypto investment products. In October, the agency expressed uncertainty about whether proposed three-times and five-times leveraged ETFs adhered to regulatory standards. Just earlier this week, it also issued warning letters to fund issuers, advising against products that promise such elevated levels of leverage concerning stocks, commodities, or digital assets.

Understanding the Debate Around Crypto Leverage

The discussion regarding excessive leverage is especially pertinent in the cryptocurrency market. The prevalent use of borrowed funds often magnifies price fluctuations and can lead to significant losses for traders at times.

On October 10, the crypto sector experienced its most extensive leverage-driven sell-off on record, with around $19 billion in positions liquidated as prices dropped sharply. This prompt liquidation not only impacted leveraged traders but also had repercussions for spot investors, whose holdings saw diminished value in the weeks that followed. For example, Bitcoin plummeted from a peak of about $126,000 in October to below $80,000 in November.

Source: The Kobeissi Letter

Leverage plays an even more pronounced role in cryptocurrency markets compared to traditional financial markets, mainly due to the frequent utilization of derivatives exchanges and perpetual futures contracts. Platforms like Binance and Bybit enable traders to take on highly leveraged positions—often 10x, 50x, or more—on perpetual futures, which are contracts that follow an asset’s price without an expiration date.

Continue to follow us for updates as the landscape of cryptocurrency investments evolves and as regulatory agencies navigate the balance between innovation and investor protection.

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