The US Securities and Exchange Commission (SEC) has given the green light for a new leveraged fund associated with the SUI token created by 21Shares. This move allows investors to gain larger exposure to the Sui ecosystem while regulatory concerns regarding excessive leverage in cryptocurrency markets remain.
On Thursday, the Sui Foundation announced that 21Shares has introduced its 2x leveraged SUI (SUI) ETF, designated as TXXS on Nasdaq. This fund is engineered to provide double the daily returns of SUI, presenting investors with a way to acquire leveraged exposure without the need to hold the cryptocurrency directly.
For example, if SUI appreciates by 10% in one day, the ETF is designed to increase by approximately 20%. Conversely, losses will also be amplified.
Instead of possessing SUI tokens directly, the fund relies on derivatives such as swaps and other financial contracts to mirror the token’s price movements.
Overall, the SEC has historically been cautious about sanctioning crypto investment products with higher leverage. Just last month, it expressed uncertainty about whether proposed three-times and five-times leveraged ETFs would comply with regulatory requirements.
Moreover, the agency recently issued a set of warning letters to issuers, advising against creating products that involve excessively high leverage in stocks, commodities, or digital currencies.
The Ongoing Conversation Regarding Crypto Leverage
The dialogue around regulating excess leverage is especially pertinent in the world of cryptocurrencies, where high levels of borrowed funds can greatly intensify price fluctuations and, at times, lead to significant losses for traders.
On October 10, the crypto market faced its most extensive leverage-induced sell-off on record, with considerable positions liquidated as prices plummeted rapidly, forcing leveraged traders to exit their trades.
This aftermath impacted not only leveraged traders but also spot investors whose asset values diminished in the subsequent weeks. For instance, Bitcoin (BTC) saw a drop from a historic peak nearing $126,000 in October to under $80,000 by November.
In crypto markets, leveraging is utilized more prominently than in traditional markets, primarily due to common practices involving derivatives exchanges and perpetual futures contracts.
Platforms like Binance and Bybit enable traders to adopt significantly leveraged positions, frequently exceeding magnitudes of 10x or even 50x, using perpetual futures that follow an asset’s pricing without expiration.
