In a comprehensive 27-page letter shared on February 22, Coinbase staunchly supported Grayscale’s application to transform its Ethereum Trust into a spot Ether exchange-traded product (ETP). A key contention made by Coinbase was the assertion that Ether is not a security, emphasizing its classification as a commodity by the U.S. Commodity Futures Trading Commission (CFTC), SEC officials’ statements, and court rulings.
The letter outlined five major arguments, including Ether’s classification as a commodity, a status reinforced by the CFTC’s approval of ETH futures. Coinbase underscored the SEC’s non-objection to the CFTC’s treatment of ETH as a commodity, asserting that both regulatory bodies and the market have consistently regarded ETH as a commodity.
Paul Grewal, Coinbase’s chief legal officer, stated, “ETH is not a security” and highlighted Ethereum’s proof-of-stake consensus as evidence of robust governance, which addresses concerns related to ownership concentration, consensus, liquidity, and governance, thereby mitigating risks of fraud and manipulation.
The second argument in the letter drew parallels between the SEC’s approval of spot Bitcoin exchange-traded funds (ETFs) and the suitability of an Ethereum ETP. Coinbase presented market data demonstrating the dispersed ownership and trading activity of ETH, highlighting its efficiency and maturity as a market.
Coinbase argued that the approval of ETH futures ETFs aligns with spot Ethereum-based funds, emphasizing their tight correlation. The exchange contended that it would be arbitrary for the SEC to approve one type while rejecting the other, given their inherent similarities.
Furthermore, Coinbase asserted that Ethereum’s blockchain possesses technological and operational security mechanisms that limit susceptibility to fraud and manipulation. The market depth, tight spreads, and price correlation across spot markets were presented as indicators of a resilient market against fraudulent activities.
Coinbase concluded its arguments by referencing its sophisticated market surveillance capabilities and an existing agreement with the Chicago Mercantile Exchange, underlining its commitment to maintaining secure trading environments.
This letter was filed in response to a proposed rule change by NYSE Arca, aiming to list and trade shares of the Grayscale Ethereum Trust as an Ethereum ETP. The Securities and Exchange Commission (SEC) typically seeks public feedback on proposed rule changes before making decisions.
