FameEX Hot Topics | Senators Urge SEC’s Gensler to Halt Approval of Additional Crypto ETFs

Two U.S. Senators, Democrats Jack Reed and Laphonza Butler, are exerting pressure on the Securities and Exchange Commission (SEC) Chair, Gary Gensler, to halt the approval of any more crypto exchange-traded funds (ETFs), highlighting the significant risks they pose to retail investors. In a detailed letter dated March 11, the senators warned against the approval of crypto ETFs, particularly pointing out the dangers associated with "thinly traded" markets that are susceptible to fraud and manipulation.

The SEC is currently reviewing eight proposed spot Ether ETF applications, sparking speculation about the potential approval of ETFs for other cryptocurrencies in the future. However, Reed and Butler cautioned that ETFs linked to thinly traded or easily manipulated cryptocurrencies could expose retail investors to substantial risks, including falling victim to pump-and-dump schemes and other fraudulent activities. Further, the senators argued against using the recent approval of spot Bitcoin ETFs as a benchmark for future ETF approvals. They acknowledged Bitcoin's market as being more established but still vulnerable to market manipulations and fraud, emphasizing that other, smaller cryptocurrency markets are even more susceptible to misconduct.

The letter also called on the SEC to implement "several specific steps" to enhance the regulatory oversight of already launched Bitcoin ETF products. This includes subjecting brokers and advisors of Bitcoin ETFs to increased regulatory scrutiny to protect investors. Alexander Grieve, a government relations lead at crypto venture capital firm Paradigm, observed that the success of spot Bitcoin ETFs seems to have caused concern among some Capitol Hill members, suggesting that the senators' letter reflects growing political pressure on SEC's Gensler.

This political pressure casts doubt on the likelihood of an Ether ETF approval in the near future. Eric Balchunas, a senior ETF analyst, noted that the success of Bitcoin ETFs has been met with skepticism by high-ranking Democrats, contributing to a pessimistic outlook regarding the approval of a spot Ether ETF. Balchunas estimated the chances of an Ether ETF approval by May to be only 35%, a significant drop from the 70% likelihood he predicted in January. He attributed this change to the SEC's lack of communication with prospective fund issuers among other concerns.

Both Reed and Butler have previously supported legislation aimed at regulating the cryptocurrency industry in the U.S. notably, Butler co-sponsored Senator Elizabeth Warren's Digital Asset Anti-Money Laundering Act bill in December, and Reed sponsored a bipartisan bill in July to enhance Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations for decentralized finance (DeFi).

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.