Coinbase asks SEC to approve Grayscale’s Ethereum spot ETF

Prominent crypto company Coinbase has called on the US Securities and Commission Exchange (SEC) to approve Grayscale’s proposed spot Ethereum exchange-traded fund (ETF), Grayscale Ethereum Trust, according to Coinbase’s letter to the SEC shared by its chief legal officer Paul Grewal.

“Coinbase believes that the Exchange’s proposed rule change to list and trade the Shares satisfies the requirements of Section 6(b)(5) of the Exchange Act, and therefore the Commission should approve the Exchange’s request for the following reasons,” the letter said.

The letter was made in response to the SEC’s request for comment on the proposed Grayscale Ethereum Trust. According to Grewal, Coinbase’s main claim in the letter is that Ethereum (ETH) is not a security, and those who have paid attention to Ethereum and its legal status know that.

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

One of the major highlights in the letter is the recent approval of several spot Bitcoin ETFs, which, according to Coinbase, creates a strong case for approving a spot Ethereum ETF.

The firm also praised Ethereum’s proof-of-stake system, saying that the model effectively manages the network and reduces risks, leading to a more robust and reliable platform. This comment comes amid mounting concerns over concentration risks within the Ethereum network, potentially exacerbated by the anticipated rise in spot Ethereum ETF demand.

“Ethereum’s robust, decentralized governance system further reduces ETH’s susceptibility to fraud and manipulation as there is no central actor responsible for its development,” the letter stated.

Additionally, Coinbase emphasizes ETH’s market depth, liquidity, and tight spreads as evidence of a mature and resilient market. The firm finally points to its agreement with CME to share surveillance information, allowing it to monitor and identify potential fraudulent activity in the ETH market.

“ETH’s market depth, tightness of spreads, and price correlation across spot markets are highly indicative of a market resilient to fraud and manipulation. ETH’s notional dollar trading volume is significantly greater than the vast majority of the stocks that comprise the S&P 500, including when adjusted for aggregate market value,” the letter noted.

Following the SEC’s approval of spot Bitcoin funds, hopeful investors anticipate a similar outcome for spot Ethereum funds. Eight asset managers are currently waiting for the regulator’s decision, and five of them have chosen Coinbase as their ETF custodian.