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Democratic Senators Call for Strict Limitations on Crypto ETF Approvals
Democratic Senators Laphonza Butler (D-CA) and Jack Reed (D-RI) have urged United States Securities and Exchange Commission (SEC) Chair Gary Gensler to impose strict limitations on the approval of crypto-based Exchange-Traded Funds (ETFs). In a letter dated March 11, the senators emphasized the potential risks that cryptocurrencies pose to the American people.
Risks Associated with Crypto ETFs
Butler and Reed highlighted the significant and unique risks associated with cryptocurrencies, expressing concerns about the SEC’s approvals enabling Wall Street to offer volatile crypto investments to ordinary Americans through brokerage and retirement accounts. They referenced a report from the Financial Industry Regulatory Authority (FINRA) in January 2024, which revealed that a substantial portion of brokers’ communications to retail investors regarding cryptocurrencies violated fair disclosure rules.
- SEC approvals have raised concerns about selling volatile crypto investments to ordinary Americans.
- FINRA report showed that brokers’ communications regarding cryptocurrencies often violated fair disclosure rules.
Potential Approval of a Spot Ethereum ETF
Following the SEC’s recent approval of spot bitcoin ETFs, discussions have emerged regarding the likelihood of a spot Ethereum ETF approval. Experts estimate the chances of approval in May to be around 35%. The success of the Bitcoin ETF has garnered attention, with some expressing concerns about the implications for the approval of an Ethereum ETF.
Call for Monitoring Broker Communications
The senators suggested referring to Bitcoin ETFs as exchange-traded products (ETPs) due to the lack of restrictions on harmful practices that typically apply to investment funds marketed to retail investors. They emphasized the need for close monitoring of communications from brokers and advisors regarding ETFs to prevent potential fraud and abuse.
- Bitcoin ETFs should be referred to as ETPs to highlight differences from traditional investment funds.
- Monitoring broker communications can help protect investors from potential fraud and abuse.
The letter concluded with a request for Gensler to take steps to ensure that Bitcoin ETFs do not use inappropriate or confusing naming conventions in official filings, aiming to safeguard investors from fraudulent practices enabled by the current regulatory framework.
As of the time of publication, there has been no public response from Gensler regarding the senators’ letter.