U.S. senators have pressured the SEC to reject another cryptocurrency ETF proposal, casting doubt on the possibility of approving an Ethereum ETF.

The chances of approval for a pending application for a spot Ethereum exchange-traded fund (ETF) this May have become difficult as two US senators have urged the Securities and Exchange Commission (SEC) to reject another cryptocurrency ETF proposal.

In a March 11 letter to SEC Chairman Gary Gensler, Senators Jack Reed and Laphonza Butler recommended that financial regulators increase their scrutiny of Bitcoin ETFs.

Lawmakers urge SEC to stop approving other cryptocurrency ETFs

Lawmakers have raised concerns about approving additional cryptocurrency ETFs beyond Bitcoin, citing potential risks to retail investors.

They argued that other cryptocurrencies, such as Ethereum, lack sufficient transaction volume and integrity to support associated ETPs. They also suspect that futures markets for these cryptocurrencies will be closely linked to spot markets, making it difficult to conduct effective market surveillance and prevent fraudulent activity.

They added:

“The SEC should severely limit the preemption of these approvals. The Bitcoin market is much more established and scrutinized than other cryptocurrency markets, although it has shown significant weaknesses. But while Bitcoin can be vulnerable to fraud and manipulation, other cryptocurrency markets are much more exposed to misconduct.”

They therefore concluded that financial regulators should protect retail investors “from ETPs that refer to thinly traded cryptocurrencies or cryptocurrencies whose prices are particularly vulnerable to pump-and-dump or other fraud schemes.”

The lawmakers’ letter arrived as Bloomberg analysts significantly lowered the odds of approval for a spot Ethereum ETF to 35%.

Eric Balchunas, senior ETF analyst at Bloomberg. suggested The success of the Bitcoin ETF may have unnerved some politicians, creating pessimism surrounding the approval of a spot ETH ETF.

SEC may face lawsuit

Paul Grewal, Coinbase’s head of legal, highlighted the potential for serious legal conflicts if the SEC decides to reject the pending Ethereum ETF application.

Grewal highlighted that many digital asset products, including Ethereum, boast market quality metrics that surpass even the most traded stocks.

According to him:

“Compared to Bitcoin, ETH’s futures and spot markets show the same type of high and consistent correlation that enables market surveillance.”

As a result, Grewal argued that the SEC’s rejection of Ethereum ETF applications would be based on faulty inferences, given the strong market performance demonstrated by Ethereum and similar digital assets.

U.S. senators have pressured the SEC to reject another cryptocurrency ETF proposal, raising doubts about the possibility of approving an Ethereum ETF. First appeared on CryptoSlate.