Coinbase Backs Grayscale’s Ethereum ETF Application, Urges SEC Approval
Crypto exchange Coinbase has thrown its support behind Grayscale’s application to offer a spot Ethereum exchange-traded fund (ETF) by converting its current Ethereum Trust product—and urged the United States Securities and Exchange Commission (SEC) to grant approval.
As the only cryptocurrency exchange traded on the U.S. stock exchange, Coinbase is a prominent voice in the crypto ecosystem. On Wednesday, the company—which is the Grayscale Ethereum Trust’s crypto custodian—submitted a detailed report highlighting Ethereum’s market maturity and regulatory compliance, arguing that those two aspects make ETH a commodity akin to Bitcoin.
Coinbase Advocates for Ethereum as a Commodity
- Coinbase supports Grayscale’s application for an Ethereum ETF conversion and urges SEC approval.
- The company submitted a detailed report emphasizing Ethereum’s market maturity and regulatory compliance.
- Ethereum is viewed as a commodity similar to Bitcoin.
“The market has long understood that ETH is not a security,” Coinbase wrote in the letter. “Senior officials of the Commission have publicly said as much on several occasions over the past six years, and neither the Commission nor its staff has disavowed this position, even after the merge.”
For years, the cryptocurrency industry has pushed for regulatory clarity about the true legal nature of tokens and digital assets. Cryptocurrency and token issuers often resist the idea of digital assets being considered securities because it would heavily increase their regulatory burden, expose them to potential lawsuits by investors when goals and expectations aren’t met, and severely limit their ability to reach a broader global market.
Ethereum’s Decentralized Governance Praised
- Coinbase highlights Ethereum’s decentralized governance as a factor in mitigating fraud and manipulation risks.
- The SEC has previously recognized Ethereum’s decentralization in its argument that ETH is not a security.
- Ethereum’s decentralized nature prevents any single entity from controlling the network and making unilateral decisions.
Coinbase also praised Ethereum’s decentralized governance, noting its effectiveness in mitigating risks of fraud and manipulation. This topic was already taken into consideration by the SEC to argue that Ethereum was, in fact, not a security given its current conditions. That’s because there is not one entity, company, or group that can control the network, unilaterally decide its model, and play a determinant role in fulfilling investors’ expectations.
Concerns about Concentration Risk
- Financial giants like S&P Global and JPMorgan have expressed concerns about concentration risk in the Ethereum network.
- The need for diversified staking strategies is emphasized to prevent network centralization.
- An increase in ether staking ETFs could affect the mix of validators participating in the Ethereum network’s consensus mechanism.
This backing arrives amid broader discussions in the financial industry about the potential risks associated with concentration in the Ethereum network, particularly concerning spot Ethereum ETFs that include staking options. Financial giants like S&P Global and JPMorgan have expressed such concerns, emphasizing the need for diversified staking strategies to prevent network centralization.
SEC Approval of Bitcoin Spot ETFs
- In January, the SEC approved 11 Bitcoin spot ETFs, marking a significant regulatory milestone for the crypto industry.
- This approval boosted Bitcoin’s price and had a positive impact on the overall crypto market.
- The total market cap of the crypto ecosystem surpassed $2 trillion.
In January, the SEC’s approval of 11 Bitcoin spot ETFs marked a significant regulatory milestone for the crypto industry, boosting the price of Bitcoin to break the $50,000 barrier in February for the first time since 2021. The rest of the crypto market followed this trend, boosting the total market cap of the crypto ecosystem to more than $2 trillion according to CoinGecko.
Hot Take: Coinbase Advocates for Ethereum ETF Conversion and SEC Approval
Coinbase’s support for Grayscale’s application to convert its Ethereum Trust product into an ETF demonstrates its belief in Ethereum’s market maturity and regulatory compliance. By urging the SEC to grant approval, Coinbase aims to contribute to the growing adoption and recognition of cryptocurrencies as commodities. The endorsement also highlights the importance of Ethereum’s decentralized governance in mitigating risks and ensuring investor confidence. However, concerns about concentration risk and network centralization pose challenges that need to be addressed for successful implementation. Nevertheless, if approved, an Ethereum ETF could have a significant impact on the crypto market, similar to what was observed with Bitcoin spot ETFs.
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