Five Compelling Reasons for Approving a Spot Ethereum ETF

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Coinbase, a prominent player in the cryptocurrency exchange realm, has officially addressed the Securities and Exchange Commission (SEC) in response to the proposed spot Ethereum Exchange-Traded Fund (ETF). Paul Grewal, Coinbase’s Chief Legal Officer, conveyed via the social media platform X that the company has presented a thorough 27-page response, accompanied by 96 citations, advocating for the approval of the proposed Grayscale Ether Trust (ETHE) ETP.

Ethereum’s Classification As A Commodity

Central to Coinbase’s argument is the classification of ETH as a commodity rather than a security. Grewal emphasizes that “ETH is not a security,” pointing to the consistent treatment of Ethereum as a commodity by regulatory bodies, including the SEC, CFTC, and the market itself, both before and after the Merge. This classification aligns with the legal framework essential for the SEC to consider approving an ETF based on ETH.

To support their case, Coinbase draws on the precedent set by the SEC’s previous approvals of Bitcoin ETFs. Grewal asserts, “The economics show that ETH is as resilient as BTC in satisfying the Commission’s standard for ETP approvals,” drawing attention to the comparable market robustness and maturity of both Ether and Bitcoin. This strategic comparison aims to remind the SEC of its earlier decisions and suggests a consistent approach for evaluating and approving an ETF based on ETH.

Technological And Operational Security Of Ethereum

The submission underscores Ethereum’s robust technological and operational security, particularly post-Merge, highlighting the transition to Proof of Stake as a significant enhancement that reduces susceptibility to fraud and manipulation. Coinbase emphasizes this technological strength, portraying Ethereum (ETH) as a reliable and stable underlying asset for a potential ETF.

A comprehensive analysis of Ethereum’s market dynamics is presented, encompassing depth, liquidity, and spread tightness. Grewal’s observation that “ETH’s market depth, tight spreads, and price correlation across spot markets indicate a market resilient to fraud and manipulation” aims to assure the SEC of ETH’s stability and its suitability as an ETF asset without introducing substantial risks to investors.

Surveillance-Sharing Agreement And Market Oversight

Coinbase also draws attention to the surveillance-sharing agreement with the Chicago Mercantile Exchange (CME) as a crucial mechanism for comprehensive market oversight. Described by Grewal as facilitating information sharing through CME’s surveillance of the ETH futures market, this agreement is positioned to monitor and prevent fraudulent and manipulative practices in the ETH market.

In conclusion, Coinbase’s submission constructs a robust argument combining legal precedent, technical security, and market stability analyses to advocate for the approval of a spot Ethereum ETF. Standard Chartered’s prediction of SEC approval by May 23, potentially leading to a $4,000 surge in ETH prices, contrasts with Dave LaValle’s cautionary view, citing only a 50% chance of the SEC approving the conversion of Grayscale’s ETH trust into a spot ETF in May.

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