Online secure cryptocurrency platform Coinbase, through its chief legal officer Paul Grewal, has faulted a letter by two US senators urging the Securities and Exchange Commission (SEC) to more tightly regulate Bitcoin ETFs and reject any further crypto ETF applications.
In the letter, Rhode Island Senator Jack Reed and California Senator Laphonza Butler urged the chairman of the US SEC Gary Gensler, to step in to ensure broker-dealers are giving investors the proper disclosures around the $BTC ETFs, which they say should be properly referred to as ETPs.
Part of the letter reads,
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“We write to urge the Securities and Exchange Commission (SEC) to take steps to protect investors following its recent approval of the listing and trading of certain spot bitcoin exchange-traded products (ETPs). The SEC’s approvals have provided a green light for Wall Street to sell volatile cryptocurrency investments to ordinary Americans through their brokerage and retirement Given the significant and unique risks posed by cryptocurrency, it is critical that Americans receive accurate, comprehensive information about Bitcoin ETPs.
“In a recent review by FINRA, roughly 70% of brokers’ communications with retail investors regarding cryptocurrency violated fair disclosure rules. In some cases, brokers’ communications falsely equated cryptocurrency with cash; in others, they provided misleading explanations of cryptocurrency’s risks. These alarming deficiencies raise significant concerns that brokers and advisers may now provide incomplete or deceptive information about Bitcoin ETPs to retail investors.
“The naming and marketing of many bitcoin ETPs appear to obfuscate important characteristics about these investments. We urge the SEC to take several specific steps under its existing authority to address these issues: (I) carefully scrutinize brokers’ and advisers’ communications regarding bitcoin ETPs to ensure investors receive complete and accurate information about these products; (2) examine brokers and advisers that recommend cryptocurrency ETPs to ensure they are acting in the best interests of their clients, as required by SEC rules; and (3) ensure that bitcoin ETPs do not use inappropriate and confusing naming conventions in SEC filings and other investor documents.
“These steps would help protect investors from fraud and abuse, which may be enabled by the current light-touch regulatory regime applicable to bitcoin ETPs. Finally, we believe the SEC should strictly limit the precedential application of these approvals. While the Bitcoin market has displayed serious weaknesses, it is nonetheless far more established and scrutinized than the market for any other cryptocurrency.
“However vulnerable bitcoin may be to fraud and manipulation, markets for other cryptocurrencies are far more exposed to misconduct. We do not believe that other cryptocurrencies show the trading volumes or integrity to support associated ETPs. Nor do we believe that markets for futures on other cryptocurrencies are likely to demonstrate the tight correlation with spot markets that would enable meaningful market surveillance to deter and detect bad actors”.
Grewal via a post on X, criticized the senators’ letter, which had claimed the approval of further crypto ETFs beyond Bitcoin would expose investors to “enormous risks.”
He wrote,
“Respectfully Senators, the evidence points exactly the opposite way”.
Grewal further explained that the market for many cryptocurrencies smaller than Bitcoin, notably Ether $3,701, demonstrated quality metrics that “exceed even the largest traded equities.” Grewal added there was direct evidence that Ether’s futures and spot markets were just as correlated as Bitcoin’s.
Recall that on the 9th of March, Coinbase and crypto asset manager Grayscale met with SEC officials to discuss a rule change for the launch of spot Ether ETFs, where Coinbase argued that if the SEC approved Bitcoin ETFs, they should approve Ether ETFs as well.
Since launching spot Bitcoin ETFs on Jan. 11, many in the industry are hopeful that other crypto assets could become featured in a United States spot crypto ETF, including Ether.
Following SEC approval of ETF, Goldman Sachs stated that Institutional investors may benefit from the approval of spot bitcoin ETFs, as these products will allow them to trade a proxy with low management fees and engage more actively in arbitrage strategies and options hedging.
It is worth noting that several spot Ether ETFs are now awaiting approval by the U.S. Securities and Exchange Commission, many of which will receive a final decision from the securities regulator around May, according to analysts.