Democratic Senators Urge SEC To Halt Crypto ETP Approvals Over Misleading Crypto Marketing

Two Democratic Senators have taken a stand against the approval of further crypto exchange-traded products (ETPs), citing concerns over retail investor protection.

What Happened: Senators Jack Reed of Rhode Island and Laphonza Butler of California have formally requested the U.S. Securities and Exchange Commission (SEC) to halt the issuance of new crypto ETPs.

Their concerns stem from a FINRA survey revealing that 70% of broker communications with retail investors failed to comply with fair disclosure rules, often misleadingly comparing cryptocurrency to cash or downplaying its risks.

The Senators argue that the current naming convention for Bitcoin exchange-traded funds (ETFs) masks the true nature of these investments, potentially misleading investors unfamiliar with the distinct risks associated with cryptocurrencies.

They emphasize that, unlike traditional ETFs that hold shares of various companies, Bitcoin BTC/USD and other cryptocurrencies do not enjoy the protections offered by the Investment Company Act of 1940.

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Highlighting Bitcoin's recent performance issues, Reed and Butler express skepticism about the market integrity and trading volumes of other cryptocurrencies, suggesting they are even more vulnerable to manipulative practices like pump-and-dump schemes.

They assert that retail investors would face significant risks from ETPs linked to such volatile assets.

In response to the Senators' concerns, Coinbase's COIN Chief Legal Officer, Paul Grewal, defended the potential for cryptocurrency ETPs on the social media platform X.

Grewal countered the Senators' claims by pointing to ether (ETH), which is anticipated to be the basis for an upcoming ETF, noting its trading volume surpasses that of many S&P 500 stocks.

He highlighted the depth and liquidity of ETH's spot market and mentioned that Coinbase had previously addressed these issues in a detailed 27-page comment letter to the SEC.

Price Action: At the time of writing, Bitcoin was trading at $67,950, down 3.8% over the past 24 hours, as reported by Benzinga Pro.

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