The chances of approval for the pending Ethereum Exchange-Traded Fund (ETF) applications in May are tense as two US Senators have urged the Securities and Exchange Commission (SEC) to reject other crypto ETF proposals.
In the March 11 letter to SEC Chairman Gary Gensler, Senators Jack Reed and Laphonza Butler advised the financial regulator to tighten its oversight of Bitcoin ETFs.
Lawmakers are urging the SEC to halt other crypto ETF approvals
The lawmakers expressed concerns about approving additional crypto ETFs besides Bitcoin, citing potential risks for retail investors.
They argued that other cryptocurrencies, such as Ethereum, lack sufficient trading volumes and integrity to support related ETPs. Furthermore, they doubt that the futures markets for these cryptocurrencies will closely correlate with the spot markets, making it challenging to conduct effective market surveillance and prevent fraudulent activities.
They added:
“The SEC must strictly limit the precedential application of these approvals. Although the bitcoin market has serious weaknesses, it is nevertheless far more established and scrutinized than the market for any other cryptocurrency. As vulnerable as Bitcoin is to fraud and manipulation, markets for other cryptocurrencies are far more vulnerable to misconduct.”
As such, they concluded that the financial regulator should protect retail investors “against ETPs that reference sparsely traded cryptocurrencies or cryptocurrencies whose prices are particularly susceptible to pump-and-dump or other fraudulent schemes.”
The lawmakers’ letter came as Bloomberg analysts significantly cut the chance of approval of a spot Ethereum ETF to 35%.
Eric Balchunas, senior ETF analyst at Bloomberg, suggested that the success of the Bitcoin ETFs may have upset some politicians, contributing to the pessimism surrounding the approval of spot ETH ETFs.
SEC may face lawsuits
Paul Grewal, chief legal officer at Coinbase, highlighted the potential for significant legal conflict if the SEC were to decide to reject the pending Ethereum ETF applications.
Grewal highlighted that numerous digital assets, including Ethereum, have market quality metrics that exceed even the most substantially traded stocks.
According to him:
“Compared to Bitcoin, ETH’s futures and spot markets show EXACTLY the same kind of high and consistent correlation that would enable market surveillance.”
Consequently, Grewal argued that the SEC’s denial of an Ethereum ETF application would be based on flawed reasoning, given the robust market performance of Ethereum and similar digital assets.
The post in which US senators push the SEC to reject other crypto ETF proposals, casting doubt on Ethereum ETFs’ chances of approval, first appeared on CryptoSlate.
