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Coinbase makes the case for approving Ether ETFs in a formal letter to the SEC.

The company argues that the approval of Ethereum ETFs could help increase accessibility for institutional investors and improve the stability of the cryptocurrency market.

Date: 2024-02-22 Author: Marek Stiller
Coinbase makes the case for approving Ether ETFs in a formal letter to the SEC.

The Grayscale application was supported by Coinbase to convert the Ethereum (ETH) Trust into an Ether Exchange product (ETP).

The legal, technical and economic rationale for approving an Ether-based ETP was presented by Paul Grewal, Coinbase’s chief legal officer, in a 27-page document made available on February 22.

One of Coinbase’s main demands was that Ether should be viewed as a commodity, not a security. The exchange cited evidence of approval by the Commodity Futures Trading Commission, statements by SEC officials and court rulings as supporting this category.

Coinbase stressed that the SEC did not object to the CFTC‘s treatment of ether as a commodity, reinforcing its position.

“Our letter lays out what anyone who has paid even a modicum of attention to this topic knows: ETH is nota security,” Grewal said. He added that both the SEC and the market treated Ether as a commodity, both before and after the Ethereum network upgrade.

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Coinbase also made additional arguments in its letter.

Ethereum features aproof-of-stakeconsensus mechanism that demonstrates strong governance and reduces the risk of manipulation and fraud. The exchange stressed that the SEC’s approval of Bitcoin’s ETP should apply equally, if not more, to Ethereum’s ETP.

According to market data, ETH trading activity and ownership are dispersed, indicating a mature and efficient market. The exchange also mentioned the technological and operational security mechanisms inherent in the Ethereum blockchain, which significantly reduce vulnerability to fraud.

Coinbase has used sophisticated market surveillance methods, including a partnership with the Chicago Mercantile Exchange (CME), to track trading activity on its platforms.

The listing was filed in response to a proposed rule change by the NYSE Arca to list and trade Grayscale Ethereum Trust (ETHE) shares as an Ethereum ETP. Prior to the decision, the SEC informed the public of the proposed rule changes.

Meanwhile, concerns have been raised about the concentration of risk in Ethereum ETFs, which include staking.

Recently, analysts at S&P Global warned that the number of validators participating in the Ethereum network’s consensus mechanism could be affected by the introduction of staking in ETFs.

While the involvement of institutional depositories could reduce concentration on the Lido‘s decentralized staking protocol, the choice of a single entity to take on a significant portion of Ether could create new concentration risks.

Managing director Andrew O’Neill said: “The increase in the number of Ether staking ETFs could affect the group of validators participating in the Ethereum network‘s consensus mechanism .”

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Marek Stiller
Marek Stiller
Founder of the "Cryptocurrency for Beginners" channel on YouTube. He collaborates with Łukasz to form the Arena Trading group, while at the same time being passionate about blockchain technology. His knowledge and experience in the cryptocurrency industry help beginner investors better understand this dynamic market.
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