The concern, as expressed by the FCC, is that the satellites are so small they are hard for U.S. Space Command to track them. Which means we could approve a rocket launch where one of these rapid little beasties knocks out a window or causes other catastrophic damage because we didn't know where it was precisely.

And you could argue it's too small to do damage (not true) or to low to be a real concern (maybe true), but the precedent is dangerous to allow.

The great thing about small satellites is that they are light and cheap and easy to launch. However, once they get to space, they take up just as much room as everything else: one orbit. Space isn’t a parking lot where you can park the smaller things closer together, and not being able to track the small satellites just makes that problem worse.

The concern is the precedent. If we let people just put up anything we could end up with (worst case) Kessler syndrome.