Senators pressure SEC’s Gensler not to approve any more crypto ETFs

Two Democratic senators argue that any further approvals would expose investors to risks including “fraud and manipulation.”

Two United States senators want Gary Gensler to pull the pin on any further crypto exchange-traded funds (ETFs), citing “enormous risks” to retail investors. 

In a March 11 letter, Democrat senators Jack Reed and Laphonza Butler claimed that allowing any further approvals of crypto ETFs by the Securities and Exchange Commission would see investors exposed to “thinly traded” markets rife with fraud and manipulation.

There are eight proposed spot Ether ETF applications awaiting approval by the SEC, and there have been hopes that other altcoins could eventually walk the same path.

“Retail investors would face enormous risks from ETPs referencing thinly traded cryptocurrencies or cryptocurrencies whose prices are especially susceptible to pump-and-dump or other fraudulent schemes,” read the letter.

Reed and Butler also urged the SEC not to allow the recent approval of spot Bitcoin (BTC) ETFs to become a precedent for further approvals.

They claimed that while the market for Bitcoin had displayed “serious weakness,” it was more established and well-scrutinized than the market for any other smaller cryptocurrencies.

“However vulnerable Bitcoin may be to fraud and manipulation, markets for other cryptocurrencies are far more exposed to misconduct.”

The senators also urged the SEC to take “several specific steps” with the already launched Bitcoin ETF products, requesting that BTC ETF brokers and advisors be subjected to further regulatory scrutiny.

Alexander Grieve, the government relations lead at crypto venture capital firm Paradigm suggested the success of spot Bitcoin ETFs had been “clearly ruffling some feathers” on Capitol Hill.

Related: Bitcoin price nails new $73.6K all-time high as ETFs eat away at supply

Crypto industry pundits say the letter is evidence of mounting political pressure on Gensler — which makes an Ether ETF approval in May seem less likely.

“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,” said Balchunas in a March 15 X post.

On March 11, Balchunas said the likelihood of a spot Ether ETF approval by May was sitting at just 35%. In January, Blachunas pegged the odds of approval at 70% but told Cointelegraph the SEC’s “radio silence” to prospective fund issuers — among several other factors — was a bad sign.

Both Butler and Reed have been involved in several pieces of legislation that seek to crack down on cryptocurrency in the United States. 

On Dec. 11 last year, Butler joined Senator Elizabeth Warren’s controversial Digital Asset Anti-Money Laundering Act bill as a co-sponsor. In July, Reed sponsored a bipartisan bill that would tighten Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations and sanctions requirements for decentralized finance (DeFi).

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