US Senators Oppose SEC Approval of New Crypto ETFs

On March 11, two US senators sent a letter to SEC Chairman SEC Gary Gensler, urging a halt to the approval of new exchange-traded funds based on digital assets, citing “enormous risks.” 

The success of the BTC spot products clearly ruffling some feathers on the Hill. @SenatorJackReed and @Senlaphonza write to the @SECGov urging:
-no further ETPs for other tokens
-make life difficult (i.e. examinations/reviews) for brokers and advisers that recommend BTC ETPs pic.twitter.com/enxdumC02N

— Alexander Grieve (@AlexanderGrieve) March 14, 2024

Jack Reed and Laphonza Butler believe that the launch of any other cryptocurrency ETFs will lead to problems for investors in markets rife with fraud and speculation.

“Retail investors will face enormous risks because ETP use narrowly traded cryptocurrencies or assets whose prices are particularly susceptible to Pump & Dump schemes or other criminal manipulations,” the letter states.

The senators asked the SEC to ensure that the approval of spot Bitcoin ETFs does not set a precedent for future decisions. 

While digital gold has shown “serious weakness,” it is more stable and studied than other cryptocurrencies, which are “more prone to improper manipulation,” the document’s authors assert. 

The senators also urged the Commission to take “several specific steps” regarding already launched products. They demanded that brokers and advisers on Bitcoin ETFs be subjected to increased scrutiny by regulators.

Alexander Grieve, head of relations at venture firm Paradigm, suggested that the success of spot funds for the first cryptocurrency has “clearly ruffled the feathers of the [government] top brass.”

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. https://t.co/SGEAkGQGyD

— Eric Balchunas (@EricBalchunas) March 14, 2024

“The blockbuster success of the Bitcoin ETF has upset high-ranking Democrats. Buyer’s remorse. This is one reason why we are pessimistic about the chances of spot Ethereum ETF approval,” stated Bloomberg exchange analyst Eric Balchunas. 

On March 11, Balchunas halved the likelihood of registering an ETF based on the second-largest cryptocurrency by market capitalization in May—from 70% to 35%. However, he emphasized that the product will be approved in the long term.

Coinbase’s chief legal officer Paul Grewal disagreed with the senators’ arguments, as “the facts point the other way.” 

Respectfully Senators, the evidence points exactly the opposite way. We have discussed our analysis with SEC staff and would be happy to do the same for you and any other policy makers who have questions. 1/7 https://t.co/juFj4QyDnj

— paulgrewal.eth (@iampaulgrewal) March 15, 2024

“Many digital assets, not just Bitcoin, demonstrate high market metrics that surpass even the largest stock equities. For example, the spot ETH market is deep and liquid: only two S&P 500 products have a higher notional trading volume in dollar terms,” he noted. 

In January, Grewal criticized the US Government Accountability Office over a report on the use of cryptocurrencies to evade sanctions. According to him, the agency conducted “zero comparative analysis to reproach an industry that spends millions and millions on compliance.”

In March, Coinbase presented arguments for converting Grayscale’s Ethereum Trust into a spot ETF.