Democratic Senators Jack Reed and Laphonza Butler are urging SEC Chairman Gary Gensler to stop approving new crypto ETFs. They highlight the risks of fraud and manipulation inherent in these still immature markets.
A letter that sounds the alarm on crypto ETFs
In a letter to the Securities and Exchange Commission (SEC) on March 11, Democratic Senators Jack Reed and Laphonza Butler urge Gary Gensler to stop greenlighting new crypto ETFs. They point out the “enormous risks” to which small investors would be exposed in these “not very active” markets, where fraud and manipulation would be commonplace.
“ Retail investors would face significant risks linked to ETPs backed by lightly traded cryptocurrencies or whose prices are particularly vulnerable to price manipulation or other fraudulent schemes.“, can we read in the letter.
No less than eight proposals for ETFs backed by Ether are currently awaiting approval by the American stock market watchdog. Many hope that it is only a matter of time before other altcoins receive the same treatment. But for senators, we have to put a stop to it.
MM. Reed and Butler call also the SEC not to make the recent Bitcoin spot ETF approvals a precedent for other cryptos. While they recognize that the BTC market, although still “vulnerable to fraud and manipulation”, is more mature and better controlled, they believe that other cryptos are much more exposed to “reprehensible behavior”.
Beyond the brake requested on future ETFs, the senators also want the SEC to tighten the screws on Bitcoin ETFs already launched. In particular, they are calling for “more in-depth regulatory review” of brokers and advisors involved in these products.
The success of Bitcoin ETFs is disturbing
For Alexander Grieve, head of government relations at Paradigm, a crypto venture capital firm, this letter shows that the success of Bitcoin ETFs has “obviously ruffled some feathers” on Capitol Hill. Many experts see this as a sign of growing political pressure on the SEC chairman, which seriously jeopardizes the chances of seeing an Ether ETF approved in May.
This is notably the opinion of Eric Balchunas, analyst at Bloomberg. On March 11, he estimated the probability of seeing an Ether ETF approved by May was only 35%, compared to 70% in January. He points in particular to the lack of communication from the SEC towards potential issuers as a worrying signal.
This letter is not a first for Senators Reed and Butler, who are increasing their anti-crypto offensives in Congress. The former recently supported a bipartisan bill aimed at toughening KYC/AML rules and sanctions in decentralized finance. The second co-sponsored in December the very controversial Digital Asset Anti-Money Laundering Act carried by Elizabeth Warren.
The revolt led by Senators Reed and Butler against crypto ETFs shows that despite recent advances, the integration of cryptos into the traditional financial system is far from unanimous. Their argument on the risks for investors risks weighing heavily when the SEC must rule on the fate of the Ether ETFs. A new litmus test for the crypto ecosystem.
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