Coinbase, a prominent cryptocurrency exchange in the United States, has thrown its support behind Grayscale’s bid to transform its Ethereum Trust into a spot Ether exchange-traded product (ETP). The company’s chief legal officer, Paul Grewal, underscored Ether’s classification as a commodity rather than a security, citing approval from the U.S. Commodity Futures Trading Commission for Ether futures and affirmations from SEC officials and court rulings.
Arguments Supporting Ether’s Classification
Coinbase outlined five key arguments in its 27-page letter to the U.S. Securities and Exchange Commission (SEC). First, it emphasized Ethereum’s status as a commodity, backed by regulatory decisions and market treatment. Second, it drew parallels between the approval of spot Bitcoin ETFs and the suitability of an Ethereum ETP. Additionally, Coinbase highlighted Ethereum’s robust governance under its proof-of-stake consensus, reducing susceptibility to fraud and manipulation.
Technological Security of Ethereum Blockchain
Furthermore, Coinbase emphasized Ethereum’s blockchain’s inherent security mechanisms, limiting susceptibility to fraudulent activities. It pointed to market indicators such as liquidity, spread tightness, and price correlation across spot markets as evidence of Ethereum’s resilience against manipulation.
Coinbase’s Market Surveillance and Collaboration
Coinbase assured its capability to monitor trading activities on its platforms and highlighted its collaboration with the Chicago Mercantile Exchange as an additional measure to ensure market integrity.
Concerns Raised by Analysts
However, S&P Global analysts expressed concerns regarding the introduction of concentration risk by spot Ethereum ETFs, particularly those involving staking. They warned that such ETFs could alter the mix of validators in Ethereum’s consensus mechanism, potentially concentrating staking activities among institutional custodians.
While institutional custodians’ involvement could diversify staking across different platforms, it could also introduce new concentration risks, especially if a single entity dominates the staking activities within these ETFs.
