- Senators Reed and Butler request the SEC to stop endorsing cryptocurrency ETFs, highlighting dangers for retail investors.
- They voice worries over deceit and manipulation in markets with low liquidity for cryptocurrencies, underlining the threat of scam operations.
- The SEC is cautioned against establishing a precedent with the approval of ETFs.
U.S. Senators Jack Reed and Laphonza Butler have urged the Securities and Exchange Commission (SEC) to cease sanctioning new cryptocurrency exchange-traded funds (ETFs), citing the hazards they present to retail investors.
Moreover, the duo of lawmakers points out that Bitcoin, the digital currency with the most rigorous scrutiny and longest history, is demonstrating flaws, while other digital currencies are significantly more susceptible to unethical activities.
“We do not believe that other cryptocurrencies show the trading volumes or integrity to support associated ETPs,” they wrote .
“Retail investors would face enormous risks from ETPs whose prices are especially susceptible to price manipulation schemes or other fraud.“
In correspondence addressed to SEC Chairman Gary Gensler, they voiced apprehensions regarding the likelihood of deceit and interference in cryptocurrency markets with lower liquidity. The senators pointed out that retail investors would encounter significant dangers from ETFs linked to cryptocurrencies lacking liquidity or prone to schemes of price tampering.
In addition, they urged the SEC not to allow the recent approval of spot Bitcoin ETFs to set a precedent for future approvals, noting that while the Bitcoin market is more stable and under greater scrutiny, other cryptocurrency markets are more vulnerable to misconduct.
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
Senators Reed and Butler are pressing the SEC to cease the approval of additional cryptocurrency exchange-traded products (ETPs) to protect retail investors from risks associated with inadequate information from brokers and limited liquidity in prominent cryptocurrencies. Research conducted by FINRA revealed that 70% of the communications from brokers to retail investors failed to comply with the standards of equitable disclosure.
“Broker communications falsely equated cryptocurrencies with cash; in other cases, they provided misleading explanations of cryptocurrency risks,” they wrote .
These concerning deficiencies highlight substantial worries that brokers and advisors could be offering retail investors partial and deceptive data regarding Bitcoin ETPs.
“Retail investors should be aware of how these ETPs differ from more common funds with which they might have experience”.
The legislators also contend that labelling Bitcoin exchange-traded funds in such a manner conceals crucial characteristics of these investments.
