US Senators Urge SEC: No More Crypto ETFs

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US Senators Jack Reed and Laphonza Butler have formally requested the Securities and Exchange Commission (SEC) to reconsider its stance on the approval of further crypto exchange-traded products (ETPs), specifically targeting those beyond the realm of Bitcoin. This appeal, articulated in a letter to SEC Chairman Gary Gensler underscores the legislators’ concerns over investor protections and the unique risks posed by the “volatile” crypto market.

US Senators Urge Gensler To Freeze Spot Crypto ETF Approvals

At the heart of the senators’ concerns is the accessibility and sale of volatile cryptocurrency investments to the general public through brokerage and retirement accounts, facilitated by the SEC’s regulatory green light.

“Given the significant and unique risks posed by cryptocurrency, it is critical that Americans receive accurate, comprehensive information about bitcoin ETPs,” the letter asserts. This statement encapsulates the senators’ apprehension about potential gaps in investor knowledge and protection.

The letter points to a review conducted by the Financial Industry Regulatory Authority (FINRA), which found that a staggering 70% of broker communications with retail investors regarding cryptocurrency breached fair disclosure rules. Misleading comparisons of cryptocurrency to cash and inadequate explanations of investment risks were among the violations noted.

“In some cases, brokers’ communications falsely equated cryptocurrency with cash; in others, they provided misleading explanations of cryptocurrency’s risks,” the senators highlighted, shedding light on the gravity of misinformation and its implications for investor decision-making.

A particular bone of contention is the nomenclature employed in the marketing of Bitcoin ETPs. By labeling these instruments as “exchange-traded funds” or “ETFs,” there’s a concern that investors may be misled into believing these products are endowed with the same protections as those under the Investment Company Act of 1940, which governs mutual funds and ETFs.

“Although it may seem like a small distinction, this purposeful confusion of terminology is troubling,” the letter elucidates, emphasizing the fundamental differences and the lack of protections such as fiduciary duties, leverage limits, and custody requirements for Bitcoin ETPs.

The senators’ letter outlines a trio of actions for the SEC: a thorough examination of brokers’ and advisers’ communications to ensure accurate investor information, scrutiny of recommendations to confirm alignment with client best interests, and a demand for clearer naming conventions to avoid confusion. Additionally, it proposes a cautious stance on the approval of ETPs for other cryptocurrencies, citing concerns over market integrity and vulnerability to fraudulent schemes.

Crypto Community Reactions

The crypto community’s response to the senators’ letter ranges from indignation to reasoned counterarguments, reflecting the polarizing nature of regulatory discourse in the crypto space.

Alexander Grieve, Government Affairs for VC firm Paradigm, interpreted the senators’ action as indicative of unease with the success of Bitcoin spot products among traditional financial circles. “The success of the BTC spot products clearly ruffling some feathers on the Hill,” he stated.

Bloomberg’s ETF experts, Eric Balchunas and James Seyffart, offered insights that skew towards skepticism about the motives behind the senators’ concerns and the feasibility of their demands. Balchunas remarked, “The blockbuster success of the Bitcoin ETF is upsetting to high ranking Dems. Buyer’s remorse. This is part of why we are pessimistic re spot Eth etf approval chances.”

A few days ago, Balchunas downgraded the probability of an Ether ETF receiving approval by May at merely 35%. Previously, in January, Balchunas had estimated a 70% chance of approval.

Fellow Bloomberg analyst James Seyffart commented, “As someone who’s spent significant time trying to obtain the data required to do this type of analysis on a minute by minute basis (it wasn’t easy & I work at Bloomberg). There’s almost zero chance these senators did the analysis themselves. So someone sent it to them… but who?”

Paul Grewal of Coinbase mounted a defense based on empirical evidence, challenging the notion that Bitcoin is the only cryptocurrency with a market robust enough to support ETPs. Grewal’s assertion that “Many digital asset commodities – not just bitcoin – demonstrate market quality metrics that exceed even the largest traded equities,” and particularly highlighting Ethereum’s market depth and liquidity, represents a direct rebuttal to the senators’ caution against expanding ETP approvals beyond Bitcoin.

Notably, Senators Butler and Reed have both played roles in numerous legislative efforts aimed at imposing stricter regulations on crypto within the United States. Last year, Butler supported Senator Elizabeth Warren’s divisive Digital Asset Anti-Money Laundering Act bill by becoming a co-sponsor. Reed introduced bipartisan legislation intended to enhance the Know Your Customer (KYC) and Anti-Money Laundering (AML) rules.

At press time, BTC traded at $68,552.

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BTC price, 4-hour chart | Source: BTCUSD on

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