Coinbase, a crypto exchange based in the United States, has expressed its support for Grayscale’s application to convert its Ethereum Trust into a spot Ether exchange-traded product (ETP). One of Coinbase’s main arguments is that Ether is not a security.
On February 22, Paul Grewal, Coinbase’s chief legal officer, shared a 27-page letter outlining the legal, technical, and economic rationale for the approval of an Ether-based ETP by the U.S. Securities and Exchange Commission (SEC).
Coinbase presented five major arguments in its letter. Firstly, it stated that Ether should be classified as a commodity, not a security, as evidenced by the approval of ETH futures by the U.S. Commodity Futures Trading Commission (CFTC), statements from SEC officials, and court rulings. The SEC has also not objected to the CFTC’s treatment of ETH as a commodity.
The second argument in the letter highlighted that the SEC’s approval of spot Bitcoin exchange-traded funds (ETFs) should also apply to an Ethereum ETP. Coinbase argued that ETH ownership and trading activity are dispersed, with high liquidity and tight spreads, indicating an efficient and mature market.
Furthermore, Coinbase stated that Ethereum’s proof-of-stake consensus has a strong governance system that mitigates risks of fraud and manipulation. The technological and operational security mechanisms in Ethereum’s blockchain also limit ETH’s susceptibility to fraud and manipulation.
Lastly, Coinbase mentioned its sophisticated market surveillance and partnership with the Chicago Mercantile Exchange as additional measures to ensure market integrity.
The letter was filed in response to a proposed rule change by NYSE Arca to list and trade shares of the Grayscale Ethereum Trust as an Ethereum ETP. The SEC requests comments on proposed rule changes to gather public feedback before making a decision.
However, S&P Global analysts expressed concerns about spot Ethereum ETFs that include staking. They believe that such ETFs could introduce new concentration risk to the Ethereum network. Some applicants, like ARK Invest and Franklin Templeton, are proposing to allow staking in their funds. Currently, Lido holds a 31.5% share of all staked Ethereum.
In the United States, proposed crypto regulations are driven by lawmakers’ fear and doubt, according to recent reports.