Paul Grewal, the chief legal officer of Coinbase, has strongly criticized a letter from two US senators urging the SEC to tighten regulations on Bitcoin ETFs and reject any future crypto ETF applications. In a post on March 15, Grewal disputed the senators’ claims that approving additional crypto ETFs would expose investors to significant risks. Grewal argued that the evidence actually indicates the opposite. He stated that smaller cryptocurrencies, such as Ether (ETH), have quality metrics that surpass even the largest traded equities. Grewal also emphasized that Ether’s spot market is deep and liquid, with only two S&P 500 stocks having higher notional dollar trading volume. He further pointed out that there is direct evidence of strong correlation between Ether’s futures and spot markets, similar to Bitcoin’s correlation.
On March 9, Coinbase and Grayscale, a crypto asset manager, met with SEC officials to discuss a rule change for the launch of spot Ether ETFs. Coinbase argued that if the SEC approved Bitcoin ETFs, they should also approve Ether ETFs. Some analysts speculate that Grayscale may be using its futures ETF application as a strategy to persuade the SEC to approve its spot Ether ETF. However, several industry experts, including Scott Johnson from VB Capital and Eric Balchunas, an ETF analyst at Bloomberg, predict that the SEC will reject the pending ETH ETFs due to concerns about correlation between spot and futures prices.
Nate Geraci, the president of the ETF Store, believes that Coinbase is fully committed to supporting spot Ether ETFs. He suggests that this could lead to an escalation of conflict between Coinbase and the regulator ahead of the May 23 deadline for the ETH ETF decision. Geraci claims that the SEC’s resistance to Ether ETFs is driven by political factors, rather than protecting investors. He believes that investors are seeking exposure to spot BTC ETFs, which is causing frustration and disappointment.
In their letter to SEC Chair Gary Gensler on March 11, senators Jack Reed and Laphonza Butler expressed concerns about the risks associated with approving further crypto ETFs. They argued that these markets are thinly traded and susceptible to fraud and manipulation. They also highlighted that markets for cryptocurrencies smaller than Bitcoin are particularly vulnerable to misconduct. Currently, there are eight proposed spot Ether ETF applications awaiting SEC approval, and there is hope that other altcoins may follow a similar path in the future.