Senators Call for SEC to Block Crypto ETPs, Coinbase Counters with Trading Volume Argument

In a recent development in the world of cryptocurrency, Senators Jack Reed and Laphonza Butler have urged the Securities and Exchange Commission (SEC) to block any further crypto exchange-traded products (ETPs). The Senators, both Democrats, have cited risks associated with poor broker disclosure and thin liquidity in major cryptocurrencies as the primary reason for their request.

According to a FINRA survey, 70% of brokers’ communications with retail investors violated fair disclosure rules. The Senators expressed concern that brokers were providing misleading information about cryptocurrency, equating it with cash and downplaying its risks. They also argued that the naming of bitcoin exchange-traded funds could mislead retail investors about the nature of these investments.

Senators Reed and Butler highlighted bitcoin’s weaknesses and expressed doubts about the trading volumes and integrity of other cryptocurrencies. They warned that retail investors could face significant risks from ETPs that are susceptible to fraudulent schemes like pump-and-dump.

In response to the Senators’ concerns, Coinbase’s chief legal officer, Paul Grewal, countered their arguments. Grewal pointed out that ether (ETH), which is expected to have an ETF, has a higher trading volume than many S&P 500 stocks. He emphasized the liquidity of ETH’s spot market and addressed the Senators’ concerns in a 27-page comment letter to the SEC.

Grewal defended the role of cryptocurrency in modernizing the financial system, stating that it is an important building block for everyone. He disagreed with the Senators’ assessment of the risks associated with ETPs and highlighted the potential benefits of expanding access to crypto investments.

The debate between Senators Reed and Butler and Coinbase’s Paul Grewal underscores the ongoing discussion about the regulation of cryptocurrency ETPs and the protection of retail investors. As the SEC considers the future of crypto ETPs, it will need to weigh the concerns raised by lawmakers against the potential benefits of expanding access to these investment products.