Two United States Senators have called on Securities and Exchange Commission (SEC) Chair Gary Gensler to put a stop to any further approval of cryptocurrency exchange-traded funds (ETFs), citing significant risks posed to retail investors. In a letter dated March 11th, Democratic Senators Jack Reed and Laphonza Butler expressed concerns that approving additional crypto ETFs could expose investors to markets characterized by low trading volumes and susceptible to fraudulent activities and manipulation.
The senators highlighted the current situation where the SEC has eight pending applications for spot Ether ETFs, with expectations that other alternative cryptocurrencies might seek approval in the future. They stressed the potential dangers faced by retail investors in ETFs linked to cryptocurrencies with limited trading activity or vulnerable to fraudulent schemes such as pump-and-dump.
Reed and Butler underscored the necessity for increased oversight on Bitcoin ETFs and cautioned against using the recent approval of spot Bitcoin ETFs as a precedent for further approvals. While acknowledging the susceptibility of Bitcoin to fraud and manipulation, they argued that markets for smaller cryptocurrencies were even more prone to misconduct.
The senators urged the SEC to implement specific measures concerning the already approved Bitcoin ETFs, including subjecting brokers and advisors to enhanced regulatory scrutiny. This pressure from Capitol Hill has stirred controversy within the industry, with potential ramifications for future regulatory decisions.
Industry analysts speculate that this political pressure on Gensler could impact the likelihood of an Ether ETF approval in May. The letter from Reed and Butler reflects the growing scrutiny and legislative efforts targeting cryptocurrencies in the US, with both senators previously involved in bills aimed at regulating digital assets and decentralized finance.
