Coinbase, one of the leading cryptocurrency exchanges, has formally responded to the Securities and Exchange Commission (SEC) regarding the proposal for a spot Ethereum Exchange-Traded Fund (ETF). Paul Grewal, Coinbase’s Chief Legal Officer, announced through social media platform X that the company submitted a comprehensive 27-page response, complete with 96 citations, to advocate for the approval of the proposed Grayscale Ether 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

The cornerstone of Coinbase’s argument rests on the classification of ETH as a commodity rather than a security. Grewal’s articulation, “ETH is not a security…before and after the Merge, the SEC, the CFTC, and the market have treated ETH not as a security but a commodity,” underscores the consensus among regulatory bodies and market participants regarding Ethereum’s status. This classification aligns with the legal framework necessary for the SEC to consider an ETF based on ETH.

Coinbase leverages the SEC’s prior approval of Bitcoin ETFs as a precedent, advocating for consistent regulatory treatment for Ethereum. Grewal posits, “The economics show that ETH is as resilient as BTC in satisfying the Commission’s standard for ETP approvals,” highlighting the parallel between Ether’s and Bitcoin’s market robustness and maturity. This comparison serves to remind the SEC of the rationale behind its earlier decisions and suggests a similar approach for ETH.

The submission emphasizes the technological and operational security mechanisms inherent in Ethereum’s blockchain, particularly post-Merge. The transition to Proof of Stake is presented as a significant enhancement to Ethereum’s security features, reducing its susceptibility to fraud and manipulation. This technological robustness is a critical factor in Coinbase’s argument, underscoring the reliability and stability of ETH as an underlying asset for an ETF.

Coinbase presents a detailed analysis of Ethereum’s market dynamics, including its depth, liquidity, and the tightness of spreads. Grewal notes, “ETH’s market depth, tightness of spreads, and price correlation across spot markets are highly indicative of a market resilient to fraud and manipulation.” This argument is designed to assure the SEC of ETH’s market stability and its capacity to support an ETF without introducing significant risks to investors.

Finally, Coinbase highlights the surveillance-sharing agreement with the Chicago Mercantile Exchange (CME) as a mechanism for ensuring comprehensive market oversight. This agreement, as described by Grewal, “facilitates the sharing of information…through its surveillance of the CME ETH futures market,” which is crucial for monitoring and preventing fraudulent and manipulative practices in the ETH market.

In conclusion, Coinbase’s submission to the SEC is a rigorously constructed argument that combines legal precedent, technical security, and market stability analyzes to advocate for the approval of a spot Ethereum ETF.

Standard Chartered predicts SEC approval for an Ethereum ETF by May 23, potentially causing a price surge to $4,000 for ETH. However, Dave LaValle, head of Grayscale ETFs, recently said there is only a 50% chance that the SEC will approve the conversion of its ETH trust into a spot ETF in May.

At press time, ETH traded at $2,961.

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