Two Democratic senators, Jack Reed and Laphonza Butler, are urging Securities and Exchange Commission (SEC) Chair Gary Gensler to refrain from approving any additional crypto exchange-traded funds (ETFs), citing significant risks to retail investors.
In a letter dated March 11, the senators expressed concerns that further approvals of crypto ETFs could expose investors to markets characterized by thin trading volumes and susceptible to fraudulent activities such as pump-and-dump schemes.
Currently, there are eight pending applications for spot Ether ETFs awaiting SEC approval, with expectations that other cryptocurrencies may follow suit in the future.
Reed and Butler emphasized the potential dangers retail investors face from ETFs tied to cryptocurrencies with limited trading liquidity or vulnerable to fraudulent schemes. They urged the SEC not to consider the recent approval of spot Bitcoin ETFs as a precedent for future decisions.
The senators highlighted the relative stability and scrutiny of the Bitcoin market compared to smaller cryptocurrencies, emphasizing the need for caution in expanding ETF offerings beyond Bitcoin.
Furthermore, Reed and Butler called for enhanced regulatory oversight of brokers and advisors involved in Bitcoin ETFs, stressing the importance of protecting investors in this rapidly evolving market.
Alexander Grieve from Paradigm, a crypto venture capital firm, noted the political backlash triggered by the success of Bitcoin ETFs, indicating increasing pressure on Gensler from Capitol Hill.
Industry analysts interpret the senators’ letter as a sign of growing political pressure on Gensler, potentially diminishing the likelihood of an Ether ETF approval shortly.
Eric Balchunas, in a post on March 15, expressed skepticism regarding the prospects of a spot Ether ETF approval by May, citing Democratic concerns and regulatory uncertainties.
Both Butler and Reed have been actively involved in legislative efforts aimed at regulating cryptocurrencies in the United States. Butler co-sponsored Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act bill in December last year, while Reed sponsored a bipartisan bill targeting decentralized finance regulations in July.
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