FameEX Hot Topics | Senators Call on SEC's Gensler to Stop Endorsing Further Crypto ETFs

Senators Jack Reed and Laphonza Butler, both Democrats, are advocating for the Securities and Exchange Commission (SEC) Chair Gary Gensler to cease the approval of further crypto exchange-traded funds (ETFs). Their concerns, detailed in a March 11 letter, focus on the potential risks these products could pose to retail investors, especially those linked to "thinly traded" cryptocurrencies prone to manipulation and fraud.

The SEC's current evaluation of eight spot Ether ETF proposals has ignited discussions on the broader acceptance of ETFs for various cryptocurrencies. Nonetheless, Reed and Butler have raised alarms about the vulnerabilities retail investors could encounter with ETFs associated with cryptocurrencies that lack liquidity or are susceptible to market abuses. They particularly criticized the notion of using the approval of Bitcoin ETFs as a standard for future ETF endorsements, pointing out the relative maturity but still apparent susceptibility of the Bitcoin market to manipulative practices, a situation they argue could be worse for smaller cryptocurrency markets.

The senators have also suggested the SEC undertake specific measures to tighten the oversight on the recently approved Bitcoin ETFs. These measures aim at imposing stricter regulatory scrutiny on the brokers and advisors associated with these ETFs, enhancing investor protection.

The pushback from Reed and Butler is indicative of the growing apprehensions among some Capitol Hill members, as noted by Alexander Grieve of Paradigm, especially in light of the success of spot Bitcoin ETFs. This sentiment has seemingly contributed to the increased political pressure on the SEC's Gensler, potentially influencing the regulatory stance on upcoming ETF approvals, particularly for Ether.

Eric Balchunas, a senior ETF analyst, interprets the success of Bitcoin ETFs and the resulting scrutiny from prominent Democrats as a factor diminishing the prospects for an Ether ETF. The optimism once pegged at 70% for its approval has dwindled to a mere 35%, largely due to the SEC's continued silence and other unfavorable signals towards fund issuers aiming to launch such ETFs.

Both senators have a history of supporting legislative efforts to regulate the crypto industry in the U.S. Butler backed Senator Elizabeth Warren's Digital Asset Anti-Money Laundering Act bill, while Reed championed a bill enhancing the Know Your Customer (KYC) and Anti-Money Laundering (AML) standards for decentralized finance (DeFi). Their consistent stance reflects a broader initiative to establish more stringent regulations within the cryptocurrency space, amidst growing concerns over its impacts on retail investors and the financial system at large.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.