Coinbase, a leading cryptocurrency exchange 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). In a detailed letter to the U.S. Securities and Exchange Commission (SEC), Coinbase outlined five key arguments to support the approval of an Ether-based ETP.
The first argument made by Coinbase is that Ether (ETH) should be classified as a commodity, not a security. This is backed by the approval of ETH futures by the U.S. Commodity Futures Trading Commission (CFTC), as well as statements from SEC officials and court rulings. Coinbase points out that the SEC has not objected to the CFTC’s treatment of ETH as a commodity.
Coinbase also highlights Ethereum’s proof-of-stake consensus, which has strong governance and mitigates risks of fraud and manipulation. The market data shows that ETH ownership and trading activity are well dispersed, indicating an efficient and mature market.
The second argument made by Coinbase is that the SEC’s approval of spot Bitcoin exchange-traded funds (ETFs) should also apply to an Ethereum ETP. As ETH futures ETFs are similar to spot Ethereum-based funds, it would be arbitrary for the SEC to approve one but not the other. Coinbase emphasizes the tight correlation between these products.
Furthermore, Coinbase argues that Ethereum’s blockchain has robust technological and operational security mechanisms that limit the susceptibility of ETH to fraud and manipulation. The market depth, tight spreads, and price correlation across spot markets further indicate a resilient market.
To address concerns about concentration risk, Coinbase asserts that it has sophisticated market surveillance tools to monitor trading on its platforms and has a partnership with the Chicago Mercantile Exchange.
The letter from Coinbase 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 seeks public feedback before making a decision on proposed rule changes.
In contrast, S&P Global analysts have expressed concerns about spot Ethereum ETFs that include staking, as they believe it could introduce new concentration risk to the Ethereum network. Some ETF applicants, such as ARK Invest and Franklin Templeton, allow staking in their funds. According to Dune Analytics, Lido currently has a 31.5% share of all staked Ethereum.
Overall, Coinbase’s letter supports the approval of an Ether-based ETP, emphasizing ETH’s classification as a commodity, its strong governance, market efficiency, and resistance to fraud and manipulation.