Coinbase’s chief legal officer, Paul Grewal, has strongly criticized a letter written by two US senators, in which they urged the Securities and Exchange Commission (SEC) to tighten regulation on Bitcoin exchange-traded funds (ETFs) and reject any future applications for crypto ETFs. In a post on March 15, Grewal refuted the senators’ claims that approving crypto ETFs beyond Bitcoin would pose significant risks to investors, stating that the evidence actually suggests the opposite. Grewal argued that cryptocurrencies such as Ether (ETH) have demonstrated quality metrics that surpass even the largest traded equities, with ETH’s spot market being deep and liquid. He also emphasized that there is direct evidence of a correlation between Ether’s futures and spot markets, similar to Bitcoin’s correlation.
Recently, Coinbase and crypto asset manager Grayscale met with SEC officials to discuss a rule change for the launch of spot Ether ETFs. During the meeting, Coinbase argued that if the SEC approved Bitcoin ETFs, they should also approve Ether ETFs. Some analysts speculate that Grayscale may be using its futures ETF application as a strategy to convince the SEC to approve its spot Ether ETF. However, industry experts, including Scott Johnson from VB Capital and Eric Balchunas, an ETF analyst from Bloomberg, have predicted that the SEC is likely to reject the pending Ether ETFs due to concerns about correlation. Nate Geraci, the president of the ETF Store, believes that Coinbase’s strong support for spot Ether ETFs may escalate the conflict between the exchange and the regulator ahead of the May 23 deadline for an ETH ETF decision.
Geraci further argues that the SEC’s pushback on Ether ETFs is driven by politics rather than investor protection. He believes that investors are interested in spot Bitcoin ETFs, leading to frustration over the SEC’s stance on Ether ETFs. Geraci acknowledges that the SEC has approved Ether futures ETFs but suggests that the rejection of the pending Ether ETF applications is due to concerns about correlation.
In their letter to SEC Chair Gary Gensler, Senators Jack Reed and Laphonza Butler expressed concerns about the risks associated with approving further crypto ETFs. They argued that “thinly traded” markets for cryptocurrencies smaller than Bitcoin are prone to fraud and manipulation, making investors more vulnerable to misconduct. Currently, there are eight proposed spot Ether ETF applications awaiting approval by the SEC, and there is hope that other altcoins may follow a similar path in the future.