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Coinbase backed Grayscale's bid to convert its ethereum (eth) Trust into an exchange-traded fund (ETF) on February 21. letter addressed to the Securities and Exchange Commission (SEC).
Coinbase Chief Legal Officer Paul Grewal said the exchange's letter provided the legal, technical and economic arguments supporting the approval of ethereum spot funds. He aggregate:
“Our letter states what anyone who has paid even the slightest attention to the topic knows: eth is not a security. In fact, before and after the merger, the SEC, the CFTC and the market have treated eth not as a security but as a commodity.”
Coinbase's endorsement comes amid growing anticipation in the crypto market for an ethereum spot ETF, reflecting market enthusiasm around bitcoin spot ETFs. Notably, prominent asset managers such as BlackRock and Fidelity, among others, have also filed for their own Spot ethereum ETFs.
Why eth spot ETFs should be approved
Coinbase outlined five critical points in its letter advocating for the approval of an ethereum ETF by financial regulators.
First, he emphasized the recognition of ethereum as a commodity, citing cases such as the regulation of eth futures by the Commodity Futures Trading Commission (CFTC), public statements by Commission officials, and rulings by federal courts.
Second, Coinbase drew parallels with the SEC's recent endorsement of bitcoin spot ETFs, stating that this precedent should be applied similarly, if not more strongly, to the listing and trading of ether ETF shares.
The company also highlighted ethereum's proof-of-stake mechanism as evidence of strong governance, highlighting factors such as ownership distribution, liquidity, and resistance against fraudulent activities.
Additionally, Coinbase noted that ethereum's spot trading activity, high liquidity, and tight market spreads indicate its efficiency and maturity. It further emphasized eth's substantial theoretical dollar trading volume, outperforming many S&P 500 stocks.
“eth's nominal dollar trading volume is significantly larger than the vast majority of stocks that make up the S&P 500, even when adjusted for aggregate market value,” Coinbase added.
Lastly, Coinbase highlighted its sophisticated market surveillance capabilities to monitor trading in the eth spot market and prevent fraudulent practices, along with its partnership with the Chicago Mercantile Exchange.
In conclusion, Coinbase argued that approving Grayscale's ETF proposal would align with SEC principles and represent a prudent decision for regulators.