United States cryptocurrency exchange Coinbase has strongly supported Grayscale in its bid to transform its Ethereum Trust into an Ether exchange-traded product (ETP), asserting that Ether is not a security.
On February 22, Coinbase’s chief legal officer, Paul Grewal, unveiled the firm’s 27-page letter presenting the legal, technical, and economic arguments for why the U.S. Securities and Exchange Commission (SEC) should endorse an Ether-based ETP.
Coinbase presented five primary arguments, highlighting that Ether is appropriately categorised as a commodity, as evidenced by the U.S. Commodity Futures Trading Commission’s endorsement of ETH futures, statements by SEC officials, and court rulings.
Furthermore, it emphasised that the SEC has not contested the CFTC’s classification of ETH as a commodity.
“Our letter sets out what anyone knows who’s paid even the slightest attention to the matter: ETH is not a security,” stated Grewal, adding, “In fact, both before and after the Merge, the SEC, the CFTC, and the market have treated ETH not as a security but as a commodity.”
The letter also argued that Ethereum’s proof-of-stake consensus displays robust governance, mitigating risks of fraud and manipulation.
Additionally, it contended that the SEC’s endorsement of spot Bitcoin exchange-traded funds (ETFs) should similarly apply to an Ethereum ETP.
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Coinbase supported its arguments with market data showing widespread ETH ownership and trading activity, along with the similarity between ETH futures ETFs and spot Ethereum-based funds.
The firm also underscored Ethereum blockchain’s inherent technological and operational security mechanisms that limit susceptibility to fraud and manipulation.
Finally, Coinbase highlighted its advanced market surveillance capabilities and partnership with the Chicago Mercantile Exchange.
The letter was a response to NYSE Arca’s proposed rule change to list and trade shares of the Grayscale Ethereum Trust as an Ethereum ETP, as per SEC’s procedural requirement for public feedback.
However, just two days earlier, analysts from S&P Global expressed concerns about spot Ethereum ETFs, warning that they could introduce new concentration risk to the blockchain network, particularly those incorporating staking, which could affect the mix of validators participating in Ethereum’s consensus mechanism.
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