Two US Senators have recently expressed concerns to the Securities and Exchange Commission (SEC) regarding the approval of further crypto exchange-traded funds (ETFs).

Senators Jack Reed and Laphonza Butler, in correspondence with SEC Chair Gary Gensler, underscored concerns regarding potential risks to retail investors, particularly citing fraud and manipulation possibilities in smaller cryptocurrency markets. They highlighted findings from a FINRA survey, revealing that 70% of brokers’ interactions with retail investors breached fair disclosure norms, including misleading comparisons of cryptocurrency to cash and insufficient risk explanations.

The senators criticized the terminology used for bitcoin ETFs, suggesting it obscures critical investment aspects. They pointed out increased risks to investors from ETFs referencing less frequently traded cryptocurrencies or those vulnerable to market manipulations like pump-and-dump schemes.

"Brokers’ communications falsely equated cryptocurrency with cash; in others, they provided misleading explanations of cryptocurrency’s risks," they emphasized, stressing the dangers of misinformation in the sector.

Moreover, Reed and Butler cautioned against letting the recent approval of spot Bitcoin ETFs establish a precedent for future endorsements. They advocated for stricter oversight of Bitcoin ETFs and related advisory services, given the comparatively less regulated nature of other cryptocurrency markets.

"Retail investors would face enormous risks from ETPs referencing thinly traded cryptocurrencies or cryptocurrencies whose prices are especially susceptible to pump-and-dump or other fraudulent schemes," the senators warned.

This stance has sparked strong criticism from industry experts. Coinbase’s Chief Legal Officer, Paul Grewal, publicly countered the senators’ concerns, arguing that established markets for major cryptocurrencies like Ether exhibit robust metrics comparable to the largest traded equities. Grewal highlighted Ether’s market depth and liquidity, asserting a direct correlation in Ether’s futures and spot markets similar to that observed in Bitcoin’s markets.

The letter follows discussions between Coinbase, crypto asset manager Grayscale, and SEC officials held on March 6, focusing on the potential approval of spot Ether ETFs. The meeting underscored Coinbase’s argument for parity in the SEC’s treatment of Bitcoin and Ether ETFs.

Several analysts have speculated on the SEC’s hesitations regarding the approval of Ether ETFs, citing concerns over market correlation disparities. Nevertheless, anticipation mounts as the crypto industry and regulators continue their dialogue ahead of a significant decision deadline for an Ether ETF, slated for May, 23.