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Coinbase Supports Grayscale’s Ethereum Exchange-Traded Product Application
Coinbase has expressed its support for Grayscale’s application to convert its Ethereum (ETH) Trust into a spot Ether exchange-traded product (ETP). In a 27-page letter shared on February 22, Coinbase’s chief legal officer, Paul Grewal, outlined the legal, technical, and economic rationale for the Securities and Exchange Commission (SEC) to approve an Ether-based ETP.
Ether as a Commodity
One of Coinbase’s key arguments was that Ether should be classified as a commodity rather than a security. The exchange pointed to the Commodity Futures Trading Commission’s approval of Ether futures, statements by SEC officials, and court rulings as evidence supporting this classification. Coinbase emphasized that the SEC has not objected to the treatment of Ether as a commodity by the CFTC, reinforcing its stance.
Additional Arguments
Coinbase also presented additional arguments in its letter. It highlighted Ethereum’s proof-of-stake consensus mechanism, which demonstrates strong governance and mitigates risks of fraud and manipulation. The exchange emphasized that the SEC’s approval of spot Bitcoin ETPs should equally apply, if not more strongly, to an Ethereum ETP.
Market data shows that ETH ownership and trading activity are dispersed, indicating a mature and efficient market. The exchange also mentioned the technological and operational security mechanisms inherent in Ethereum’s blockchain, which significantly limit susceptibility to fraud and manipulation. Coinbase cited its own sophisticated market surveillance measures, including a partnership with the Chicago Mercantile Exchange (CME), to monitor trading activities on its platforms.
Proposed Rule Change and Concerns
The letter was submitted in response to a proposed rule change by NYSE Arca, which aims to list and trade shares of the Grayscale Ethereum Trust (ETHE) as an Ethereum ETP. The SEC has requested public comments on the proposed rule change before making a decision.
Meanwhile, there have been concerns regarding the concentration risk associated with spot Ethereum ETPs that include staking. Analysts from S&P Global recently warned that the introduction of staking in ETFs could impact the mix of validators participating in the Ethereum network’s consensus mechanism. While institutional custodians’ involvement could reduce concentration on the Lido decentralized staking protocol, it could introduce new concentration risks if a single entity is chosen to stake a significant portion of the included Ether.
Ian is a cryptocurrency enthusiast blending humor with professionalism. With an engineering background and a storyteller's heart, he simplifies the blockchain world with sharp analysis and a touch of wit. At Cryptowire, he brings his unique perspective to make digital financial innovation accessible to all.
