Crypto ETF: Senators Push SEC Chair Gensler to Halt Approval of Crypto ETFs

Crypto ETF
Crypto ETF: Two Democratic senators are urging Gary Gensler to cease the approval of any further crypto exchange-traded funds (ETFs), citing significant risks for retail investors.

In a letter dated March 11, Senators Jack Reed and Laphonza Butler expressed concerns that allowing additional crypto ETF approvals by the Securities and Exchange Commission (SEC) could expose investors to the dangers of “thinly traded” markets, ripe with fraud and manipulation.

Currently, there are eight pending applications for spot Ether ETFs awaiting SEC approval, with hopes that other alternative cryptocurrencies (altcoins) could follow suit.

The letter emphasized the potential risks faced by retail investors from ETFs referencing thinly traded or easily manipulated cryptocurrencies, cautioning against the approval of such products.

Reed and Butler also urged the SEC not to consider the recent approval of spot Bitcoin (BTC) ETFs as a precedent for further approvals. They argued that although the Bitcoin market has shown some weaknesses, it is more established and closely monitored compared to smaller cryptocurrencies.

Additionally, the senators called on the SEC to implement specific measures concerning the already approved Bitcoin ETFs, including increased regulatory scrutiny on brokers and advisors involved with these products.

Alexander Grieve, the government relations lead at crypto venture capital firm Paradigm, suggested that the success of spot Bitcoin ETFs has drawn attention from Capitol Hill and contributed to mounting political pressure on Gensler. This pressure could potentially decrease the likelihood of an Ether ETF approval in May.

According to industry analysts, the senators’ letter underscores the increasing political pressure on Gensler, making the approval of a spot Ether ETF in May less probable.

“The substantial success of the Bitcoin ETF is causing concern among high-ranking Democrats. This reluctance suggests buyer’s remorse and lowers the likelihood of spot Ether ETF approval,” said Balchunas in a March 15 statement.

Balchunas had previously estimated the probability of a spot Ether ETF approval by May at just 35% on March 11. In January, he had assessed the odds at 70%, but cited the SEC’s lack of communication with prospective fund issuers and other factors as negative indicators.

Both Butler and Reed have been involved in legislative efforts aimed at regulating cryptocurrencies in the United States. Butler co-sponsored Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act bill in December last year, while Reed sponsored a bipartisan bill in July aimed at strengthening Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations for decentralized finance (DeFi).

Also Read: Craig Wright Declared Not Satoshi by U.K. Judge

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