Coinbase Chief Legal Officer Paul Grewal announced via the social media platform X that the company submitted a comprehensive 27-page response, complete with 96 citations, to advocate for approval of the proposed ETP on Grayscale Ether Trust (ETHE).
Coinbase, a leading cryptocurrency exchange, formally responded to the Securities and Exchange Commission (SEC) regarding the proposal for a spot Ethereum exchange-traded fund (ETF).
Yesterday, Coinbase Chief Legal Officer Paul Grewal, via X, informed the following:
“… 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.”
Ethereum’s Classification as Commodity
The cornerstone of Coinbase’s argument rests on the classification of ETH as a commodity rather than a security. Grewal’s argument that “ETH is not a security… before and after the merger, the SEC, CFTC and the market have treated ETH not as a security but as a commodity,” underscores the consensus among regulators and investors. market participants regarding the state of Ethereum.
This classification aligns with the legal framework necessary for the SEC to consider an ETH-based ETF.
Precedent Set by Bitcoin ETF Approvals
Coinbase leverages the SEC’s prior approval of Bitcoin ETFs as precedent, advocating for consistent regulatory treatment for Ethereum. Grewal posits that “The economics show that ETH is as resilient as BTC in meeting the Commission’s standard for ETP approvals,” highlighting the parallel between the strength and maturity of the Ether and Bitcoin markets.
This comparison serves to remind the SEC of the rationale for its previous decisions and suggests a similar approach for ETH.
Ethereum’s Technological and Operational Security
The presentation emphasizes the technological and operational security mechanisms inherent to the Ethereum blockchain, particularly after the merger. The transition to Proof-of-Stake is presented as a significant improvement to Ethereum’s security features, reducing its susceptibility to fraud and manipulation.
This technological strength is a critical factor in Coinbase’s argument, which underlines the reliability and stability of ETH as an underlying asset for an ETF.
Market Dynamics and Resilience
Coinbase presents a detailed analysis of Ethereum market dynamics, including its depth, liquidity, and spread rigidity. Grewal notes that “The depth of the ETH market, the tightness of spreads, and the price correlation between spot markets are highly indicative of a market resistant to fraud and manipulation.”
This argument is designed to assure the SEC of the stability of the ETH market and its ability to support an ETF without introducing significant risks to investors.
Shared Surveillance and Market Supervision Agreement
Finally, Coinbase highlights the shared surveillance agreement with the Chicago Mercantile Exchange (CME) as a mechanism to ensure comprehensive market supervision.
This agreement, as Grewal describes, “facilitates information sharing… through its surveillance of the CME ETH futures market,” which is crucial to monitoring and preventing fraudulent and manipulative practices in the ETH market.
In conclusion, Coinbase’s SEC filing is a rigorously constructed argument that combines legal precedent, technical security, and market stability analysis to advocate for the approval of an Ethereum spot ETF. Standard Chartered predicts SEC approval for an Ethereum ETF before May 23, which could cause the price of ETH to rise to $4,000.
However, Dave LaValle, head of Grayscale ETFs, recently said that there is only a 50% chance that the SEC will approve the conversion of its ETH trust to a spot ETF in May. Currently, ETH is trading at $2,961.
By Leonardo Perez
