The U.S. Securities and Exchange Commission (SEC) has given its approval for a leveraged exchange-traded fund (ETF) linked to the SUI token, offered by 21Shares. This development provides investors with amplified exposure to the Sui ecosystem, even as questions surrounding the risks associated with leverage in cryptocurrency markets persist.
On Thursday, the Sui Foundation announced that 21Shares has officially launched its 2x leveraged SUI ETF. This fund, trading on the Nasdaq under the ticker TXXS, is designed to mirror twice the daily return of the SUI token. This structure allows investors to gain leveraged exposure without the necessity of directly holding the cryptocurrency itself.
In practical terms, this means that if SUI experiences a 10% increase in value within a single trading day, the ETF aims to achieve approximately a 20% gain. Conversely, losses are similarly magnified on the downside.
The fund achieves this leveraged exposure not by directly holding SUI tokens, but by employing derivatives, including swaps and other financial contracts, to track the price movements of the token.
SEC's Stance on Leveraged Crypto Products
Historically, the SEC has shown reluctance in approving cryptocurrency investment products with high levels of leverage. In October, the regulator indicated that it remained "unclear" whether proposed ETFs offering three-times and five-times leverage would meet the required regulatory standards.
Earlier this week, the agency also distributed a series of warning letters to fund issuers. These letters cautioned against the creation and offering of products that provide such elevated levels of leverage across various asset classes, including stocks, commodities, and digital assets.
The Ongoing Debate Over Crypto Leverage
The discussion around curbing excessive leverage is particularly pertinent within the cryptocurrency market. The extensive use of borrowed money in this space continues to amplify price volatility and, at times, leads to significant losses for traders.
On October 10, the crypto market experienced its largest leverage-driven sell-off on record. Approximately $19 billion worth of positions were liquidated as prices plummeted rapidly, forcing highly leveraged traders out of their positions.
The repercussions of this sell-off extended beyond leveraged traders to affect spot investors as well. These investors witnessed a decline in the value of their holdings in the weeks that followed. For instance, Bitcoin (BTC) saw its price fall from a record high near $126,000 in October to below $80,000 in November.
Leverage plays a considerably more significant role in crypto markets when compared to traditional financial markets. This is largely attributed to the widespread adoption and use of derivatives exchanges and perpetual futures contracts.
Platforms such as Binance and Bybit enable traders to establish highly leveraged positions, often reaching 10x, 50x, or even higher, on what are known as perpetual futures. These contracts are designed to track an asset's price without a fixed expiration date.