Democratic senators Jack Reed and Laphonza Butler have urged the Securities and Exchange Commission (SEC) to take action against what they perceive as significant issues in the marketing and transparency of cryptocurrencies.

Ether, the second-largest cryptocurrency by market capitalization, currently stands at around $440 billion, a fraction of bitcoin's market cap of over $1.3 trillion. Grayscale Investments secured a legal victory against the SEC last August, leading to the approval of bitcoin exchange-traded funds (ETFs) in the United States.

The court ruling highlighted the SEC's preference for bitcoin futures ETFs over those directly holding BTC, a decision criticized by the crypto asset manager as arbitrary and lacking in sound reasoning. Judges criticized the SEC for not adequately considering the financial and mathematical relationship between spot and futures markets in their decision-making process.

Senators Reed and Butler expressed skepticism about the effectiveness of futures markets in monitoring other crypto assets, emphasizing the importance of robust market surveillance to prevent illicit activities. They emphasized that the SEC has the discretion to reject such products, especially considering the associated risks.

Despite these concerns, the SEC permitted the trading of ETFs based on ether futures contracts starting in October. In a letter supporting Grayscale's application to convert its Ethereum Trust into an ETF, Coinbase highlighted the tight spreads and price correlation of ETH across spot markets, citing similarities to the rationale behind approving spot bitcoin ETFs.

The SEC has postponed its decision on several proposed ether ETFs, including an application from BlackRock, with expectations for a resolution on these offerings in May. The ongoing debate underscores the regulatory challenges and complexities surrounding the approval of cryptocurrency-based financial products.