Two Senate Democrats pressure the SEC to block crypto ETPs

• Senators Reed and Butler urge the SEC to halt crypto ETPs, citing risks to investors.
• Coinbase’s Grewal has countered the senators highlighting Ethereum’s liquidity and market metrics.
• Recently, Patient Capital Management revealed that it was ditching Grayscale Bitcoin Trust for Bitcoin ETPs.

In a move that highlights the growing scrutiny over the cryptocurrency market, two Democratic Senators, Jack Reed of Rhode Island and Laphonza Butler of California, have urged the Securities and Exchange Commission (SEC) to intervene and halt the approval of further cryptocurrency exchange-traded products (ETPs).

The senators’ concerns revolve around the potential risks faced by retail investors due to inadequate disclosure practices and thin liquidity in major cryptocurrencies.

Sen. Reed and Sen. Butler’s call for regulatory action

Senators Reed and Butler’s call to action comes amidst the rising popularity of Bitcoin (BTC) spot products, which has drawn attention from Capitol Hill.

In a letter addressed to the SEC’s chairman Gary Gensler, the senators not only advocate for a halt on approving ETPs for cryptocurrencies other than Bitcoin but also propose imposing stricter scrutiny on brokers and advisers who recommend Bitcoin ETPs to investors.

The letter raises significant concerns regarding the disclosure practices of brokers, citing findings from a FINRA survey that revealed a substantial portion of communications between brokers and retail investors violated fair disclosure rules.

The senators argue that such deficiencies may lead to incomplete or deceptive information being provided to retail investors regarding the risks associated with Bitcoin ETPs.

Coinbase CLO has countered the senators’ claims

Paul Grewal, the chief legal officer of Coinbase, a prominent cryptocurrency exchange, in a tweet thread, has pushed back against the senators’ concerns.

Grewal points out that multiple digital asset commodities, including Ethereum (ETH), demonstrate market quality metrics surpassing those of even the largest traded equities. He emphasizes Ethereum’s deep and liquid spot market, with trading volumes comparable to major stocks in the S&P 500.

Moreover, Grewal highlights the rigorous analysis conducted by Coinbase, which was outlined in a 27-page comment letter submitted to the SEC.

The letter provides a legal, technical, and economic rationale for the approval of an Ethereum Exchange-Traded Product (ETP), underscoring the viability and suitability of cryptocurrencies beyond Bitcoin for ETPs.

The ongoing debate between regulatory concerns and industry assertions underscores the complexities surrounding the integration of cryptocurrencies into traditional financial markets.

As policymakers grapple with these issues, the outcome will undoubtedly shape the future landscape of cryptocurrency investment opportunities and regulatory oversight.