Paul Grewal, Coinbase Chief Legal Officer, publicly announced on X platform that the exchange submitted a 27-page response to the SEC. The response, supported by 96 citations, strongly advocates for the approval of Grayscale’s Ethereum Trust (ETHE) ETP.
Today @coinbase responded to @SECGov's request for comment on the proposed @Grayscale Ether Trust ($ETHE) ETP. 27 pages and 96 citations that provide the (1) legal, (2) technical, and (3) economic rationale for approval. 1/6
— paulgrewal.eth (@iampaulgrewal) February 21, 2024
Ethereum’s Commodity Classification
Transition: Additionally, Coinbase’s argument centers on ETH’s classification as a commodity rather than a security.
Statement: Grewal emphasizes regulatory consensus and market consensus on Ethereum’s status. He asserts, “ETH is not a security.”
Clarification: Both before and after the Merge, regulatory agencies and market participants have treated ETH consistently.
Assertion: The SEC, the CFTC, and the market all recognize ETH as a commodity rather than a security.
This categorization complies with the legal requirements for the SEC to consider an ETH-based ETF.
Approvals of Bitcoin ETFs Set a Precedent.
Coinbase argues for uniform regulatory treatment for Ethereum by citing the SEC’s earlier approval of Bitcoin ETFs as precedent. “The economics show that ETH is as resilient as BTC in satisfying the Commission’s standard for ETP approvals,” asserts Grewal, drawing attention to the similarities between the market maturity and robustness of Ether and Bitcoin. This analogy suggests a similar course of action for ETH and helps the SEC remember the reasoning behind its previous rulings.
Ethereum’s Operational And Technological Security
The submission strongly emphasizes the post-merge technological and operational security measures built into the Ethereum blockchain. It is claimed that switching to Proof of Stake will significantly improve Ethereum’s security features by lessening its vulnerability to manipulation and fraud. This technological resilience is a crucial component of Coinbase’s case, highlighting ETH’s dependability and stability as the underlying asset of an ETF.
The Dynamics Of The Market And Resilience
Coinbase thoroughly examines the depth, liquidity, and spread tightness of the Ethereum market. Grewal states that the market resilience to fraud and manipulation is highly suggestive of ETH due to its depth, tight spreads, and price correlation across spot markets. This argument aims to reassure the SEC about the stability of the ETH market and its ability to support an ETF without posing a serious risk to investors.
Agreement for Surveillance-Sharing and Market Supervision
Coinbase stresses the importance of market oversight through a surveillance-sharing arrangement with the CME. This agreement aids in monitoring and preventing dishonest activities in the ETH market.
Coinbase’s SEC submission presents a well-reasoned case, blending technical security, legal precedent, and market stability analyses. Standard Chartered predicts SEC approval of an Ethereum ETF by May 23, potentially driving ETH price to $4,000.
According to Dave LaValle, head of Grayscale ETFs, SEC approval for converting its ETH trust into a spot ETF in May is 50% likely.
ETH traded at $2,961 at the time of publication.
