Coinbase Supports Grayscale’s Application for Spot Ether ETF
Cryptocurrency exchange Coinbase has expressed its backing for Grayscale’s proposal to convert its Ethereum Trust into a spot Ether exchange-traded product (ETP). Coinbase’s Chief Legal Officer released a 27-page letter outlining the legal, technical, and economic reasons why the United States Securities and Exchange Commission (SEC) should approve an Ether-based ETP. The letter argues that Ether should be classified as a commodity, not a security, citing the approval of ETH futures by the Commodities Futures Trading Commission and statements from SEC officials. Coinbase also highlighted Ethereum’s strong governance characteristics and the market’s resilience to fraud and manipulation. The approval of spot Ether ETFs could benefit Coinbase’s custodial business.
Main Arguments Made by Coinbase
In its letter to the SEC, Coinbase made several key arguments in support of spot Ether ETFs:
- Ether has been classified as a commodity, not a security, by relevant authorities and court rulings.
- Ethereum’s Proof-of-Stake consensus mechanism demonstrates strong governance characteristics.
- ETH’s market depth, liquidity, and price correlation indicate a resilient market.
The Case for Approval of Spot ETH ETFs
Coinbase also argued that the SEC’s approval of spot Bitcoin ETFs should apply to Ether as well, emphasizing:
- The distributed ownership and trading activity of ETH, indicating an efficient and mature market.
- The similarities between ETH futures ETFs and spot Ether-based funds.
- The technological and operational security measures in the Ethereum blockchain that mitigate fraud and manipulation risks.
- Coinbase’s sophisticated market surveillance capabilities and partnership with the Chicago Mercantile Exchange.
Concerns About Concentration Risk
However, rating agency S&P has raised concerns about the introduction of staking in spot Ethereum ETFs, which could create concentration risk. S&P managing director Andrew O’Neill warned that a high concentration of staking by a single entity could pose risks to the Ethereum network’s consensus mechanism. While institutional custodians could reduce concentration on decentralized staking protocols like Lido, they could also introduce new concentration risks.
🔥 Hot Take: Coinbase’s Support Boosts Prospects for Spot Ether ETF Approval 🔥
With Coinbase throwing its weight behind Grayscale’s application for a spot Ether ETF, the chances of approval by the SEC appear to be increasing. Coinbase’s arguments around Ether’s classification as a commodity, its strong governance, and the resilience of the market could sway the SEC in favor of spot Ether ETFs. The approval of these ETFs would not only benefit Grayscale and other applicants but also have significant implications for Coinbase’s custodial business. However, concerns about concentration risk in staking need to be addressed for the successful launch of spot Ethereum ETFs.
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