Two United States Senators are urging Gary Gensler to halt any further approval of crypto exchange-traded funds (ETFs), citing significant risks to retail investors. In a letter dated March 11th, Democratic Senators Jack Reed and Laphonza Butler argued that allowing additional crypto ETF approvals by the Securities and Exchange Commission (SEC) would expose investors to markets characterized by low trading volumes and susceptible to fraudulent activities and manipulation. Addressing Potential Dangers Currently, the SEC has eight pending applications for spot Ether ETFs, with hopes that other alternative cryptocurrencies might follow suit in the future. The senators emphasized the potential dangers faced by retail investors in ETFs referencing cryptocurrencies with limited trading activity or vulnerable to fraudulent schemes like pump-and-dump. Reed and Butler emphasized the need for increased oversight on Bitcoin ETFs and cautioned against using the recent approval of spot Bitcoin ETFs as a precedent for further approvals. Despite acknowledging the susceptibility of Bitcoin to fraud and manipulation, they argued that markets for smaller cryptocurrencies were even more prone to misconduct. More Regulation The senators urged the SEC to implement specific measures concerning the already approved Bitcoin ETFs, including subjecting brokers and advisors to enhanced regulatory scrutiny. Alexander Grieve, government relations lead at Paradigm, noted that the success of spot Bitcoin ETFs had stirred controversy within Capitol Hill. This political pressure on Gensler could diminish the likelihood of an Ether ETF approval in May, according to industry analysts. The aforementioned letter reflects growing scrutiny and legislative efforts targeting cryptocurrencies in the US, with both Reed and Butler previously involved in bills aiming to regulate digital assets and decentralized finance.
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