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FalconX Acquires 21shares to Strengthen Crypto ETF Business Amid Expanding Market

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FalconX, a leading digital assets trading firm, announced on Wednesday that it will acquire crypto investment manager 21shares for an undisclosed amount, marking a major expansion into the exchange-traded funds (ETF) market as cryptocurrency investment vehicles gain momentum globally.

The acquisition comes just weeks after the U.S. Securities and Exchange Commission (SEC) cleared the last hurdles for a wave of new spot cryptocurrency ETFs, extending beyond bitcoin and ether to assets like solana and dogecoin.

Founded in 2018 by Hany Rashwan and Ophelia Snyder, 21shares manages over $11 billion in assets across multiple crypto investment products. The company is known for pioneering exchange-traded products that give traditional investors regulated access to digital assets.

FalconX, which reached an $8 billion valuation in a 2022 funding round, has facilitated more than $2 trillion in trading volume and serves over 2,000 institutional clients worldwide. The firm said it will use 21shares’ ETF experience and brokerage infrastructure to accelerate the development of regulated crypto investment products.

“With the SEC streamlining listing pathways, this sets them up to be both the pit crew and the driver as the market moves beyond only bitcoin and ether wrappers,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.

Analysts say the deal positions FalconX at the forefront of the next wave of crypto ETFs, which are expected to diversify into multiple tokens as the market matures. However, potential challenges loom, including a possible U.S. government shutdown that could slow ETF approvals, and volatility following renewed U.S.-China trade tensions that recently triggered the crypto sector’s largest selloff ever.

By combining FalconX’s institutional trading reach with 21shares’ ETF management expertise, the merger could create one of the strongest players in the crypto-finance ecosystem, bridging the gap between traditional finance and digital asset innovation.

SEC uncertain over approval of proposed 3x and 5x leveraged ETFs amid market risks

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The U.S. Securities and Exchange Commission (SEC) said it is “unclear” whether newly filed 3x and 5x leveraged exchange-traded funds (ETFs) will meet regulatory approval, raising questions over products that amplify returns beyond current leverage limits.

“Since the U.S. government shutdown began, the agency has received a large number of ETF registration statements seeking 3x and 5x leveraged, equity-linked exposure,” said Brian Daly, director of the SEC’s Division of Investment Management. “It is unclear whether these ETFs would comply with the Derivatives Rule (Rule 18f-4), which generally limits leverage to 2x,” he added.

The filings include 27 proposed leveraged ETFs from Volatility Shares, which submitted the first-ever 5x ETF for the U.S. market. Such funds aim to multiply daily stock returns fivefold, but carry heightened risk of losses in volatile markets.

The SEC’s limited operational capacity during the shutdown has also slowed reviews. Analysts warn that excessive leverage could expose retail investors to amplified losses.

“Over half of leveraged ETFs launched more than three years ago have closed, and 17% have lost more than 98% of their value,” said Bryan Armour, ETF analyst at Morningstar, underscoring the danger of high leverage.

Amid recent market turbulence linked to U.S.–China trade tensions, leveraged ETFs have been blamed for intensifying selloffs, with JPMorgan estimating $26 billion in forced selling last Friday alone.

The SEC said no filings will be reviewed until the shutdown ends, leaving the fate of the proposed ETFs uncertain.

Crypto firms’ tokenized stocks spark investor protection concerns

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Crypto companies are racing to launch stock-backed tokens, but traditional financial firms and regulators are sounding alarms over potential risks to investors and market stability.

Encouraged by President Trump’s pro-crypto policies, major players such as Robinhood, Gemini, and Kraken have rolled out tokenized stock products in Europe, with Coinbase and Dinari seeking U.S. approval. Even Nasdaq has proposed offering tokenized shares — a sign that the concept is moving into mainstream finance.

These blockchain-based instruments are designed to mirror traditional equities while enabling 24/7 trading and instant settlement. Their combined market value has surged to $412 million from just a few million a year ago, according to RWA.xyz. But critics warn that many of these products lack ownership rights, dividends, and regulatory safeguards, making them more akin to derivatives than stocks.

“There’s a real risk investors don’t know what they’re buying,” said Diego Ballon Ossio, a partner at Clifford Chance. Legal experts say inconsistent rights and disclosures across issuers could undermine market integrity.

While some firms like Kraken and Ondo Finance claim to fully back their tokens with underlying assets, others — including Robinhood’s tokens pegged to OpenAI — have faced regulatory scrutiny for using derivative structures.

Regulators in both the U.S. and Europe are divided over how to classify and supervise these products. Financial groups including Citadel Securities and SIFMA argue that tokenization should not bypass investor protection rules, warning that liquidity could fragment across unregulated markets.