Crypto exchange Coinbase has formally asked the U.S. Securities and Exchange Commission (SEC) to approve Grayscale’s bid to convert its current Ethereum Trust product into a spot ETH exchange-traded fund (ETF). This move comes after a handful of prominent Wall Street titans, including Fidelity and BlackRock, have filed paperwork for Ethereum ETFs.
Ether price could explode to unfathomable heights if the SEC allows the listing of the asset’s spot ETFs on U.S. exchanges.
Spot ETH ETFs Should Be Approved
Coinbase, which is the Grayscale Ethereum Trust’s crypto custodian, has stood firmly behind the asset manager in its application to introduce a spot ETH ETF.
In a 27-page letter shared by Coinbase chief legal officer Paul Grewal on Thursday, the exchange explained several reasons why the Securities and Exchange Commission should approve an ether-based spot ETF.
Key to Coinbase’s argument is the categorization of ether as a commodity, not a security, a distinction crucial for legal compliance and market perception.
“The market has long understood that ETH is not a security,” Coinbase wrote in the letter. “Senior officials of the Commission have publicly said as much on several occasions over the past six years, and neither the Commission nor its staff has disavowed this position, even after the merge.”
Coinbase then praised Ethereum’s proof-of-stake consensus mechanism, stating that the model effectively mitigates risks of fraud and manipulation, leading to a more robust and reliable platform. This remark comes amid growing concerns over concentration risks within the Ethereum network, especially regarding spot ETH ETFs that include staking options.
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
The exchange also highlighted ETH’s market depth, liquidity, and tight spreads as evidence of a mature and efficient market. Furthermore, Coinbase points to its comprehensive surveillance-sharing agreement with the Chicago Mercantile Exchange (CME), which would allow it to monitor ETH futures to safeguard against fraudulent and manipulative practices in the Ethereum market.
Finally, ETH futures ETFs are similar products to spot market ether funds, so it would be arbitrary for the SEC to grant approval to one but not the other, given their close correlation, Coinbase argued.
Spot ETF Can Fuel ETH Rally
The SEC’s approval of nearly a dozen spot Bitcoin ETFs in mid-January marked a watershed moment for the crypto industry, spurring the price of BTC to break the $50,000 hurdle in February for the first time since 2021.
Ether, the market’s second-largest cryptocurrency also managed to rise through the $3,000 mark, buoyed by Bitcoin’s strong upward momentum.
Just like with spot Bitcoin ETFs, these regulated investment products are anticipated to boost ether’s institutional appeal — driving demand for ETH. If retail appetite maintains the momentum while institutions swarm in, ETH could soar past $3,500. If this happens, ether could then quickly find itself returning to its November 2021 lifetime peak of $4,878.
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