Will SEC Reject BlackRock, Grayscale & Other Applications?

Rhode Island Senator Jack Reed and California Senator Laphonza Butler have penned a compelling letter to Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC). In the letter they urged meticulous scrutiny and caution in the approval process for crypto ETFs. This has led to uncertainty over approval of Spot Ethereum ETF applications by Grayscale, BlackRockBlackRock, VanEck, and Franklin Templeton.

Will SEC Reject Spot Ethereum ETF Applications?

In advocating for a cautious approach, the senators argue against the blanket approval of cryptocurrency ETPs, citing concerns over market integrity and investor protection. They call for strict limitations on the precedential application of such approvals. Moreover, they asserted that markets for other cryptocurrencies lack the trading volumes and integrity to support associated ETPs.

The senators emphasized, “Finally, we believe the SEC should strictly limit the precedential application of these approvals.” Hence, the chances of SEC approving Spot Ether ETFs in May have lowered significantly. Furthermore, the letter also warned against the risks posed by thinly traded cryptocurrencies and those susceptible to fraudulent schemes.

In addition, Senators Reed and Butler expressed skepticism regarding the suitability of these assets for ETPs, citing potential risks to retail investors. They underscored the SEC’s discretion in approving such products, urging restraint in the face of heightened risks. The letter concluded, “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.”

Earlier, Bloomberg ETF expert Eric Balchunas significantly lowered the likelihood of a Spot Ethereum ETF approval in May, from 60–70% to 30%. This decline in optimism coincided with dissatisfaction in the market regarding the SEC’s handling of Ethereum ETF applications.

Moreover, the SEC’s lack of engagement and silence on the matter has left the market uncertain about its eventual decision. Hence, if the regulator agency decides to adhere to the request made by the U.S. senators, it could possibly reject the Spot Ethereum ETF applications by giants like BlackRock, Grayscale and others. In addition, the possibility of XRP, SHIB, or TRX ETFs might also be ruled out.

Also Read: Spot Bitcoin ETF: Cetera Approves IBIT BTCO, FBTC, EZBC For Trading

Scrutiny Over Bitcoin ETFs

Senators Reed and Butler also highlighted the need for clarity in terminology, emphasizing that the Bitcoin ETF offerings should be referred to as Exchange-Traded Products (ETPs) rather than ETFs. They stressed the importance of ensuring investors receive complete and accurate information about crypto ETPs. Moreover, these U.s. senators called for close examination of broker-dealers’ communications to mitigate the risk of misinformation.

Furthermore, the senators underscored the regulatory obligation to safeguard investors’ interests. They pressured the SEC to “examine brokers and advisers that recommend cryptocurrency ETPs to ensure they are, in fact, acting in the best interests of their clients, as required by SEC rules.” Moreover, they emphasize the importance of scrutinizing advisers recommending cryptocurrency ETPs to ascertain compliance with SEC regulations.

Another critical aspect highlighted in the letter pertains to naming conventions used in SEC filings and investor documents. Senators Reed and Butler call for measures to ensure that Bitcoin ETFs do not utilize inappropriate or confusing naming conventions, thereby enhancing transparency and clarity for investors.

They stated, “Ensure that bitcoin ETPs do not use inappropriate and confusing naming conventions in SEC filings and other investor documents.” The crypto industry is bracing for further challenges as Spot Bitcoin ETFs are now expected to be in the SEC’s radar. Meanwhile, the hype for May approval of Spot Ethereum ETFs has faded owing to the uncertainties.

Also Read: Bitcoin ETF Inflow Drops 80% To $133M As BTC Price Retreats

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