The Race for Ethereum ETFs: Coinbase Urges SEC to Greenlight Grayscale Application

Coinbase is advocating for the Securities and Exchange Commission (SEC) to approve the listing of the Grayscale Ethereum Trust for trading.

In a letter submitted in response to a proposed rule change by NYSE Arca, Coinbase expressed strong support for the listing and trading of Grayscale Ethereum Trust (ETHE) shares as an Ethereum Exchange-Traded Fund (ETF).

Coinbase Argues ETH is a Not a Security

Paul Grewal, the chief legal officer at Coinbase, announced on X that Coinbase had provided the SEC with a comprehensive argument with the legal, technical, and economic aspects to justify the approval of the trust for trading.

Today @coinbase responded to @SECGov‘s request for comment on the proposed @Grayscale Ether Trust ($ETHE) ETP. 27 pages and 96 citations that provide the (1) legal, (2) technical, and (3) economic rationale for approval. 1/6

— paulgrewal.eth (@iampaulgrewal) February 21, 2024

Coinbase argued that Ethereum’s classification is a commodity, not a security, supported by the Commodity Futures Trading Commission’s (CFTC) approval of Ethereum futures, court rulings, and SEC officials’ statements. In addition, there has not been any opposition from the SEC regarding the CTFC’s Ethereum classification.

Grewal highlighted that the letter just lays out the already known information whereby before and after the merge, the SEC, CTFC, and the market have consistently treated Ethereum as a commodity.

He added that the Ethereum proof-of-stake mechanism has strong governance, which is evident through its decentralized nature, liquidity, and structure, reducing the risks associated with fraud and market manipulation.

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Coinbase also raised the point that the approval granted by the SEC for spot Bitcoin ETFs should also extend, if not more so, to an Ethereum ETF. Furthermore, the letter argues that Ethereum futures ETFs are similar to spot Ethereum-based funds, making it arbitrary for the SEC to endorse one while disregarding the other, given their strong correlation.

SEC Delays Grayscale’s Ethereum ETF Consideration

On January 25, the SEC extended its consideration of Grayscale’s Ethereum ETF to March 10. According to SEC Chair Gary Gensler, the approval for a spot Bitcoin ETF was exclusive to one cryptocurrency.

On February 20,  rating agency S&P Global analysts expressed reservations regarding spot Ethereum ETFs incorporating staking, citing the potential introduction of “new concentration risk” to the blockchain network. Several applicants for spot Ethereum ETFs, including ARK Invest and Franklin Templeton, have proposed incorporating staking within their funds.

Meanwhile, Craig Salm, Grayscale’s head of legal, anticipates that the SEC will probably authorize an ETF tied to the Ethereum spot price in the summer of 2024.