Coinbase approved Grayscale’s bid to convert its Ethereum (ETH) trust into an exchange-traded fund (ETF) in a February 21 letter to the Securities and Exchange Commission (SEC).
Paul Grewal, Coinbase’s chief legal officer, said the exchange’s letter provided legal, technical and economic arguments supporting the approval of a spot Ethereum fund. He added:
“Our letter says something that everyone who has paid any attention to the subject knows. ETH is not a security. In fact, before and after the merger, the SEC, CFTC, and markets have treated ETH as a commodity rather than a security.”
Coinbase’s endorsement comes amid rising expectations for a spot Ethereum ETF in the cryptocurrency market, reflecting the market’s enthusiasm surrounding a spot Bitcoin ETF. Notably, prominent asset managers such as BlackRock and Fidelity have also applied for their own Spot Ethereum ETFs.
Why a Spot ETH ETF Should Be Approved
Coinbase outlined five key points in a letter defending financial regulators’ approval of its Ethereum ETF.
First, we cited examples such as the Commodity Futures Trading Commission’s (CFTC) regulation of ETH futures, public statements by Commission officials, and federal court rulings to emphasize that Ethereum is a commodity.
Second, Coinbase drew parallels with the SEC’s recent approval of a spot Bitcoin ETF, arguing that this precedent should be applied similarly, if not more strongly, to the listing and trading of ether ETF shares.
The company also highlighted Ethereum’s proof-of-stake mechanism as evidence of strong governance, emphasizing factors such as ownership distribution, liquidity, and resilience to fraudulent activities.
Additionally, Coinbase noted that Ethereum’s spot trading activity, high liquidity, and tight spreads in the market indicate its efficiency and maturity. This further highlighted ETH’s significant nominal dollar trading volume, which outpaced many S&P 500 stocks.
Coinbase added, “ETH’s nominal dollar volume is significantly greater than that of most stocks that make up the S&P 500, even when adjusted for total market cap.”
Lastly, Coinbase highlighted its sophisticated market surveillance capabilities that monitor ETH spot market transactions and prevent fraudulent activity, along with its partnership with the Chicago Mercantile Exchange.
In conclusion, Coinbase argued that approving Grayscale’s ETF proposal is consistent with SEC principles and represents a prudent decision by the regulator.