SEC Halts High-Leverage Crypto ETFs While Bitcoin Community Rallies Behind Samourai Wallet Pardon

SEC Enforces Leverage Limits on Crypto ETFs

The United States Securities and Exchange Commission has sent warning letters to multiple exchange-traded fund providers, effectively halting applications for leveraged ETFs that would offer more than 200% exposure to underlying crypto assets ^[2].

The regulatory action cites provisions under the Investment Company Act of 1940, which caps investment fund exposure at 200% of their value-at-risk as measured against an "unleveraged baseline" reference portfolio ^[2]. The SEC directed issuers to reduce leverage amounts before applications would receive further consideration, putting a stop to proposed 3-5x crypto leveraged ETFs in the United States ^[2].

In what observers called an "unusually speedy move," SEC regulators posted the warning letters publicly on the same day they were sent to issuers, signaling officials' eagerness to communicate concerns about leveraged products to the investing public ^[2].

The timing follows October's flash crash that resulted in $20 billion in leveraged liquidations—the most severe single-day liquidation event in crypto history—which sparked widespread discussion about leverage's impact on crypto markets ^[2].

Leverage Concerns Mount as Liquidations Triple

Crypto liquidations have nearly tripled during the current market cycle compared to the previous one, according to analysis platform Glassnode ^[2]. Daily liquidations in crypto futures markets now average approximately $68 million in long positions and $45 million in short positions, compared to $28 million and $15 million respectively in the last cycle ^[2].

Demand for leveraged crypto ETFs had surged following the 2024 US presidential election, driven by anticipation of a more favorable regulatory environment for cryptocurrency ^[2]. However, analysts responding to the SEC letters warned that "leverage is clearly out of control" ^[2].

Bitcoin Policy Institute Calls for Samourai Wallet Pardon

As the SEC tightens oversight on one front, the Bitcoin community is rallying around a different regulatory issue: the prosecution of Samourai Wallet developers. A petition calling for presidential pardons has gathered more than 3,200 signatures ^[1].

On December 2, the Bitcoin Policy Institute published a detailed case arguing that the prosecution was based on a misapplication of federal money-transmission law and that non-custodial tools fall outside the Bank Secrecy Act's money-transmitter framework ^[1].

The Institute warned that allowing the convictions to stand "risks chilling innovation in privacy-preserving Bitcoin tools in the United States" ^[1]. From BPI's perspective, "A pardon would correct a clear misapplication of federal law, protect the integrity of long-standing distinctions in financial regulation, and reaffirm that publishing non-custodial software is not — and should not become — a criminal act" ^[1].

Concerns Over Selective Clemency

The Samourai case has drawn comparisons to recent high-profile pardons, including those granted to Silk Road founder Ross Ulbricht and Binance founder Changpeng "CZ" Zhao ^[1]. This contrast has raised questions about the criteria and optics of crypto-related pardons.

Bitcoin researcher Kyle Torpey commented on the apparent disparity: "The perceived corruption associated with the CZ pardon will look even worse if the Samourai Wallet devs aren't pardoned for similar charges" ^[1].

Support for the Samourai developers has come from multiple quarters, including the Libertarian Party of Oregon, which argued that "Code IS speech!" in defense of the developers ^[1]. Prominent Bitcoin advocate Walker America posted that if President Trump "truly wants America to be the Bitcoin capital of the world, then our government must not unjustly incarcerate Bitcoin developers while turning a blind eye to Big Bankers' crimes" ^[1].

The parallel developments illustrate the complex and sometimes contradictory regulatory landscape facing the cryptocurrency industry in the United States, where enforcement actions and calls for reform continue to shape the sector's future.