TL;DR
- Coinbase backs Grayscale’s application to convert its Ethereum Trust into an ETH-focused ETP.
- Paul Grewal, legal director of the exchange, presented arguments in favor of an ETH ETP to the SEC, highlighting its classification as a commodity and comparing it to the approval of Bitcoin ETFs.
- Additionally, he emphasized the maturity of the ETH market, its high liquidity and ownership distribution, as well as its market surveillance capabilities, while addressing concerns about centralization.
Coinbase, one of the world’s largest exchanges, has backed Grayscale’s application to convert its Ethereum Trust into an exchange-traded product (ETP) focused on ETH. This move has generated considerable interest in the crypto market, especially regarding ETH’s classification as a commodity by the Commodity Futures Trading Commission (CFTC) as opposed to a security.
In its letter to the U.S. Securities and Exchange Commission (SEC), Coinbase’s legal director, Paul Grewal, presented a series of legal, technical, and economic arguments in support of approving an Ethereum ETP. He highlighted that Ethereum has been treated as a commodity by both regulators and the market, supporting its classification as such. Additionally, he noted the analogy with the recent approval of Bitcoin ETFs by the SEC, arguing that this precedent should apply similarly, if not more forcefully, to Ethereum ETFs.
Our letter lays out what anyone knows who's paid even the slightest bit of attention to the subject: ETH is not a security. In fact, before and after the Merge, the SEC, the CFTC, and the market have treated ETH not as a security but a commodity. 2/6
— paulgrewal.eth (@iampaulgrewal) February 21, 2024
Coinbase also emphasized the maturity and efficiency of the Ethereum market, pointing out its high liquidity, dispersed trading activity, and robust ownership distribution as evidence of its ability to function as an efficient commodity. Furthermore, it highlighted its sophisticated market surveillance capabilities to detect and prevent fraudulent practices, as well as its partnership with the Chicago Mercantile Exchange (CME) to strengthen market oversight.
Coinbase Emphasized Centralization Risks
Despite Coinbase’s backing, there are legitimate concerns about the centralization risks associated with Ethereum ETFs. The inclusion of staking in these ETFs could alter the composition of validators in the Ethereum network, potentially introducing new concentration risks. However, the exchange argues that approving Ethereum ETFs would be consistent with SEC principles and represent a prudent decision for regulators in terms of facilitating investor access to the cryptocurrency market.
Coinbase and Grayscale’s struggle to achieve approval for an Ethereum ETP underscores the importance and growing legitimacy of ETH as a commodity in the financial world. However, it is crucial to carefully address concerns about centralization to ensure a fair and equitable market for all participants.
