In a letter dated March 11 addressed to United States Securities and Exchange Commission (SEC) Chair Gary Gensler, Democratic Senators Laphonza Butler (D-CA) and Jack Reed (D-RI) are urging for stringent restrictions on the approval of cryptocurrency-based ETFs.
Cryptocurrency ETFs present a risk to the American populace.
In their letter, Senators Butler and Reed assert that cryptocurrencies carry “significant and unique risks” for the American population.
“The SEC’s approvals have effectively given Wall Street the green light to offer volatile cryptocurrency investments to ordinary Americans through their brokerage and retirement accounts,” the letter emphasized.
Furthermore, the Democratic senators referenced a report from January 2024 by the Financial Industry Regulatory Authority (FINRA), which revealed that approximately 70% of brokers’ communications to retail investors regarding cryptocurrencies violated fair disclosure regulations.
“These concerning shortcomings raise substantial apprehensions that brokers and advisers may be furnishing incomplete or misleading information about bitcoin ETPs to retail investors,” Reed and Butler cautioned.
What is the probability of a Spot Ethereum ETF being established?
Following the SEC’s approval of several spot bitcoin ETFs in January, prompting a surge in bitcoin’s price, Reed and Butler penned their letter. This week, amidst the latest rally, the token reached an all-time high, surpassing $73,000.
Concurrently, as discussions surrounding the potential approval of a spot Ethereum ETF by the SEC escalate, experts have substantially reduced the estimated likelihood of approval in May to a mere 35%.
“The remarkable triumph of the Bitcoin ETF is disconcerting for prominent Democrats,” stated Eric Balchunas, Senior ETF Analyst at Bloomberg. “It reflects buyer’s remorse. This is one of the reasons we have a pessimistic outlook regarding the likelihood of spot Ethereum ETF approval.”
Will the SEC oversee brokers’ communications regarding ETFs?
In their communication, the senators have contended that Bitcoin ETFs should be categorized as exchange-traded products (ETPs), primarily due to the absence of “restrictions on harmful practices that apply to most investment funds marketed to retail investors.” These practices include limitations on leverage, custody requirements, and scrutiny by the SEC.
The senators highlighted the significance of this distinction, emphasizing that bitcoin ETPs differ substantially from mutual funds and ETFs in critical aspects.
Subsequently, the letter called upon Gensler to vigilantly monitor communications from brokers and advisors regarding ETFs. Additionally, they urged him to ensure that Bitcoin ETFs refrain from employing inappropriate and confusing naming conventions in official filings.
The senators underscored that these measures are essential for safeguarding investors from potential fraud and abuse, which could be facilitated by the current regulatory framework governing Bitcoin ETPs.
As of the time of publication, Gensler has not publicly responded to the letter, leaving the resolution of these concerns pending.
