Two US Democratic senators are urging the Securities and Exchange Commission (SEC) chair, Gary Gensler, not to approve any further crypto-based spot exchange-traded funds (ETFs), citing “enormous risks” to retail investors.

Senators Urge SEC: No More Crypto ETFs

In a March 11 letter sent to Gensler, senators Jack Reed and Laphonza Butler asked the SEC chairman to “take steps to protect investors”, as the approval of Bitcoin (BTC) ETFs in January “provided a green light for Wall Street to sell volatile cryptocurrency investments to ordinary Americans.”

The two lawmakers claimed that the SEC’s approval of more crypto ETF products would expose investors to “thinly traded” markets awash with fraud and manipulation.

Roughly seven proposed spot Ethereum (ETH) ETF applications are currently on the SEC’s desk, and there are hopes that other altcoins like Ripple’s XRP and Solana (SOL) could eventually follow ETH’s lead.

Butler and Reed noted that Bitcoin — which they consider the most established and monitored crypto asset — is portraying weakness, and other cryptocurrencies are far more vulnerable to “misconduct”.

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“We do not believe that other cryptocurrencies show the trading volumes or integrity to support associated ETPs,” the senators wrote. “Retail investors would face enormous risks from ETPs…whose prices are especially susceptible to pump-and-dump or other fraudulent schemes.”

They also contend that by labelling Bitcoin exchange-traded funds as such, the name “obfuscates important characteristics about these investments.”

“Retail investors should be made aware of how these ETPs differ from more common funds which they may have experienced,” they stated, suggesting that BTC is not subject to the same protections under the Investment Company Act of 1940, including fiduciary duty, limits on leverage, and custody requirements, that ETFs which hold shares of various firms would have.

As for the measures to tackle what Butler and Reed believe is a threat to investor safety, they suggest BTC ETF brokers and advisors be subjected to more stringent regulatory oversight.

Coinbase CLO Strikes Back

Coinbase chief legal officer Paul Grewal has criticized the senators’ letter to Gensler. “Respectfully, Senators, the evidence points exactly the opposite way,” Grewal opined in an X post.

The CLO explained that ether, believed to be the next crypto asset to have a spot ETF, has quality metrics that “exceed even the largest traded equities.”

“ETH’s spot market is deep and liquid — only two S&P 500 stocks have higher notional dollar trading volume,” Grewal postulated.

As ZyCrypto reported previously, Coinbase met with the Securities and Exchange Commission to discuss Grayscale’s proposal to convert its Ethereum Trust into a spot ETH ETF, where the exchange argued that if the regulator greenlighted BTC ETFs, they should give the nod to ETH ETFs as well.

Grewal pointed out today that there is empirical evidence that proves Ethereum’s futures and spot markets were just as correlated as Bitcoin’s.

“When compared to Bitcoin, ETH’s future and spot market demonstrate EXACTLY the same type of high and consistent correlation that would enable market surveillance.”

Meanwhile, Alexander Grieve, vice president of the Tiger Hill Partners communications company, interpreted the senators’ move as a sign of nervousness with the success of spot Bitcoin ETFs among some congressmen “The success of the BTC spot products clearly ruffling some feathers on the Hill,” he remarked.