Coinbase Urges SEC To Approve Conversion Of Grayscale Ethereum Trust Into Spot Ether ETF

Updated: 22 February 2024

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Coinbase urged the Securities and Exchange Commission (SEC) to approve the conversion of Grayscale’s Ethereum Trust into an Ether ETF (exchange-traded fund), arguing that ETH is a commodity, not a security.

The SEC itself, the Commodity Futures Trading Commission (CFTC) and the crypto market have all “treated ETH not as a security but a commodity,” said chief legal officer Paul Grewal in a post on X, referring to a 27-page letter that was submitted to the SEC in support of the conversion.

“Our letter lays out what anyone knows who’s paid even the slightest bit of attention to the subject,” he added. “ETH is not a security.”

Whether or not Ether is a security is considered crucial to the chances of the SEC approving spot Ether ETFs. When the regulator approved spot Bitcoin ETFs last month, chair Gary Gensler made it clear that the approval was restricted to an ETF ”holding one non-security commodity, bitcoin.”

He added that the approval “should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities.” Gensler has stated previously that all cryptocurrencies except Bitcoin are securities.

Coinbase Says ETH ”Resilient To Fraud”

The Coinbase letter came in response to the SEC’s request for comment on the proposal to convert the Grayscale Ethereum Trust into a spot Ether ETF. It also addressed the SEC’s concerns over the potential market manipulation of crypto ETFs.

“ETH’s market depth, tightness of spreads, and price correlation across spot markets are highly indicative of a market resilient to fraud and manipulation,” said the letter. “The technological and operational security mechanisms inherent in Ethereum’s blockchain significantly limit ETH’s susceptibility to fraud and manipulation.”

The economics show that ETH is as resilient as BTC in satisfying the Commission's standard for ETP approvals. 4/6 pic.twitter.com/wDsnMFGZhL

— paulgrewal.eth (@iampaulgrewal) February 21, 2024

Gensler Has No Political Incentive To Approve A Spot ETH ETF

Investment bank TD Cowen said in a Jan. 29 note that there is no political incentive for Gensler to approve an Ether ETF, and referred to the decision as a “political call.”

It predicted that approval of spot Ethereum ETFs will most likely not happen until late 2025 or early 2026.

Wall Street banking giant JPMorgan says there is only a 50% chance that ETFs will be approved by May this year.

When are we getting a Spot $ETH ETF? @ARKInvest’s President and COO Tom Staudt says “soon.”

Full discussion: https://t.co/hbeY4TTr4f https://t.co/gjZghlre4M pic.twitter.com/NWNOtldp1T

— Eleanor Terrett (@EleanorTerrett) January 24, 2024