Coinbase argues that the Bitcoin ETF provision applies “equally or more strongly” to Ether.
Coinbase has submitted a strongly worded letter to the Securities and Exchange Commission (SEC) arguing for the approval of a spot ether exchange-traded fund (ETF).
The letter was filed in response to NYSE Arca's proposal to list and trade Greyscale Ethereum Trust shares as an Ethereum ETP.
TLDR
Coinbase Ether's handling of CFTC, court rulings and absence of SEC opposition Ethereum proof-of-stake management reduces fraud and fraud risks According to Coinbase Coinbase argues that Ether is not a security, or a commodity, or more Ether ETFs analysts have warned that Ether ETFs that allow staking pose a concentration risk to verifiers They warn that they may introduce Coinbase as showing market depth, tight spreads and price correlations as resilient as Ethereum.
Central to Coinbase's argument is that Ether should be classified as a commodity, not a security. The company points to the Commodity Futures Trading Commission's (CFCC) regulation of ether futures, federal court rulings declaring ether not a security, and the SEC's lack of opposition to the CFTC's commodity designation.
Coinbase states that the SEC's approval of spot Bitcoin ETFs should apply strongly to the Ethereum ETP, if not equally. The company characterizes Ether's market depth, tight spreads and price correlation as a mature, efficient market manipulation. Coinbase also notes that Ether's trading volume is significantly higher than most S&P 500 stocks.
Today @coinbase responded to @SECGov's request for comment on the proposed @Grayscale Ether Trust ($ETHE) ETP. 27 pages and 96 citations providing (1) legal, (2) technical, and (3) economic rationale for approval. 1/6
— paulgrewal.eth (@iampaulgrewal) February 21, 2024
Coinbase argues that Ethereum's transition to proof-of-stake has strengthened network governance. They state that concentration of ownership, collective bargaining mechanisms, liquidity, and governance reduce the risks of fraud and embezzlement after a merger.
The company emphasizes the security mechanisms in the Ethereum blockchain that limit the vulnerability of fraud. Moreover, Coinbase has market monitoring capabilities through an agreement with the Chicago Mercantile Exchange (CME) to track any irregular trading activity.
On the other hand, analysts at S&P Global warn that ETFs that allow staking of Ether may “result in a new concentration risk.” If a single custodian holds the congestion for many Ether EFAs, it can exacerbate centralization in high-proof protocols like Lido, which already has more than 30% of Ether.
Coinbase has made a strong case that its rationale for approving Bitcoin ETFs applies equally or as strongly to Ether funds. The company openly argues for Ether and highlights Ethereum's signs of market efficiency and resistance to regulatory risk.
However, analysts caution that ETF hedging methods should be carefully evaluated to prevent over-indulgence of underwriters. The SEC must weigh these various considerations in making its decision.
