Coinbase backs Grayscale’s Ethereum ETF bid, spotlighting ETH as a commodity

Coinbase has endorsed Grayscale’s bid to convert its Ethereum (ETH) Trust into an exchange-traded fund (ETF) in a Feb. 21 letter addressed to the Securities and Exchange Commission (SEC).

Coinbase’s chief legal officer, Paul Grewal, said the exchange’s letter provided the legal, technical, and economic arguments supporting spot Ethereum funds’ approval. He added:

“Our letter lays out what anyone knows who’s paid even the slightest bit of attention to the subject: ETH is not a security. In fact, before and after the Merge, the SEC, the CFTC, and the market have treated ETH not as a security but a commodity.”

Coinbase’s endorsement comes amid increasing anticipation in the crypto market for a spot Ethereum ETF, mirroring the market enthusiasm surrounding spot Bitcoin ETFs. Notably, prominent asset managers like BlackRock and Fidelity, among others, have also filed for their own Spot Ethereum ETFs.

Why spot ETH ETFs should be approved

Coinbase outlined five critical points in its letter advocating for the financial regulators’ approval of an Ethereum ETF.

Firstly, it emphasized Ethereum’s recognition as a commodity, citing instances such as the regulation of ETH futures by the Commodity Futures Trading Commission (CFTC), public statements from Commission officials, and federal court rulings.

Secondly, Coinbase drew parallels with the SEC’s recent endorsement of spot Bitcoin ETFs, asserting that this precedent should apply similarly, if not more forcefully, to the listing and trading of ether ETF shares.

The company also highlighted Ethereum’s Proof-of-Stake mechanism as evidence of robust governance, highlighting factors like ownership distribution, liquidity, and resilience against fraudulent activities.

Additionally, Coinbase pointed out that Ethereum’s spot trading activity, high liquidity, and tight spreads in the market indicate its efficiency and maturity. It further emphasized ETH’s substantial notional dollar trading volume, surpassing many S&P 500 stocks.

“ETH’s notional dollar trading volume is significantly greater than the vast majority of the stocks that comprise the S&P 500, including when adjusted for aggregate market value,” Coinbase added.

Lastly, Coinbase highlighted its sophisticated market surveillance capabilities to monitor ETH spot market trading 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.