Two Democratic Senators, Jack Reed and Laphonza Butler, have urged the U.S. Securities and Exchange Commission (SEC) to pause the approval of additional crypto exchange-traded products (ETPs). They contend that the safeguarding of retail investors is jeopardized due to insufficient broker disclosure and volatile liquidity in major cryptocurrencies.

The Senators’ plea follows a FINRA survey uncovering that 70% of broker communications with retail investors failed to comply with fair disclosure rules. Reed and Butler are worried that brokers’ misleading descriptions of cryptocurrencies and their risks could result in distorted information about bitcoin ETPs for retail investors.

Moreover, Reed and Butler pointed out how labeling these financial instruments as bitcoin exchange-traded funds may confuse investors, obscuring crucial investment distinctions. They stressed that cryptocurrencies and traditional funds have fundamental differences that investors must comprehend, including the unique protections provided to ETFs under the Investment Company Act of 1940.

The Senators also expressed apprehensions about the resilience and security of even the most established cryptocurrencies like Bitcoin, suggesting they might be too susceptible to fraudulent activities to sustain associated ETPs. On the other hand, Coinbase Chief Legal Officer, Paul Grewal, disagreed with the Senators’ viewpoint.

Grewal argued that cryptocurrencies, such as Ether, exhibit high trading volumes exceeding those of many S&P 500 stocks, asserting that crypto plays a vital role in the modernization of our financial system.