Senators Pressure SEC Against Approving Additional ETFs

Two US congressmen proposed giving Gary Gensler control of all cryptocurrency ETFs, citing huge risks to retail investors. In a letter sent on March 11, Jack Reed and Laphonza Butler, both Democrats, spoke out against allowing the Securities and Exchange Commission (SEC) to approve more ETFs. Cryptocurrency will push investors into “sparse” markets full of fraud and manipulation.

There are 8 spot Ether ETFs awaiting approval

There are currently eight spot Ether ETF proposals awaiting SEC approval, and it is expected that other altcoins will follow suit. “Their letter said retail investors would face significant risks from ETPs linked to thinly traded cryptocurrencies or from cryptocurrencies whose prices are susceptible to pump operations” and dumping or other fraudulent activities,” said the letter.

The success of the BTC spot products clearly ruffling some feathers on the Hill. @SenatorJackReed and @Senlaphonza write to the @SECGov urging:
-no further ETPs for other tokens
-make life difficult (i.e. examinations/reviews) for brokers and advisers that recommend BTC ETPs pic.twitter.com/enxdumC02N

— Alexander Grieve (@AlexanderGrieve) March 14, 2024

Reed and Butler also urged the SEC not to approve recent Bitcoin (BTC) spot ETFs to avoid setting a precedent for further approval decisions. They assert that although the Bitcoin market has revealed “serious weaknesses”, it is still more thoroughly built and tested than the market of any other minor cryptocurrency. “Whether or not Bitcoin is susceptible to fraud and manipulation, other cryptocurrency markets are at much higher risk of improper behavior,” they said.

The senators also called on the SEC to take “a number of specific measures” with respect to already-launched Bitcoin ETF products, requiring BTC ETF brokers and advisors to comply with the regulation and submit to regulatory oversight more stringent. Alexander Grieve, head of government relations at crypto venture capital firm Paradigm, said that the success of Bitcoin spot ETFs has “clearly created unrest” on Capitol Hill.

Related: JMP Securities Forecasts Bitcoin Could Reach $280,000 USD

Spot Ether ETF approvals are becoming more difficult

Experts in the cryptocurrency sector say the letter is a testament to the growing political pressure on Gensler – which makes the approval of an Ether ETF in May seem less likely. “Bitcoin ETF’s Wild Success Is Making Senior Democratic Officials Uncomfortable Investor’s Remorse. This Is Part of the Reason Why We Are Not Optimistic About Approval of Eth etf,” Balchunas said in a March 15 post.

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. https://t.co/SGEAkGQGyD

— Eric Balchunas (@EricBalchunas) March 14, 2024

On March 11, Balchunas announced that the likelihood of spot Ether ETF approval in May was only at 35%. In January, he estimated the approval rate at 70%, and he said “radio silence” from the SEC toward potential fund issuers was a negative sign.

Both Butler and Reed have been involved in drafting several bills aimed at regulating cryptocurrencies in the United States. On December 11 last year, Butler joined Senator Elizabeth Warren’s controversial digital assets anti-money laundering bill as one of its co-sponsors. In July, Reed sponsored a bipartisan bill to tighten Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations and impose sanctions on financial activity Decentralization (DeFi).