The Coinbase legal team argued that Ethereum is highly decentralized and viewed as a commodity as much Bitcoin, thus its spot ETFs should be approved soon.
The approval of spot Bitcoin exchange-traded funds (ETFs) in the United States earlier last month has sparked speculation of an inevitable approval of Ethereum-based ETFs. Several fund managers who received the green light to offer spot Bitcoin ETFs are now racing to offer spot Ethereum ETFs.
With the United States elections around the corner, the approval of spot Ethereum ETFs seems highly inevitable as the political class bids for the crypto-voting bloc.
According to a report published by Bernstein analysts earlier this week, there is a 50 percent chance the U.S. SEC will approve the spot Ethereum ETFs by May, 2024. Moreover, the US SEC already approved the Ethereum futures ETPs, whereby the approval of spot Bitcoin ETFs was largely bolstered by the approval of the futures product.
Coinbase on Spot Ethereum ETFs
On February 21, Coinbase Global Inc (NASDAQ: COIN) wrote a response to the US SEC on whether to approve or disapprove the proposed rule change to list and trade shares of Grayscale Ethereum Trust under NYSE Arca rules. The cryptocurrency exchange highlighted its surveillance-sharing agreement with the Chicago Mercantile Exchange Inc (CME), which supports the approval of spot Ether ETF. Coinbase highlighted that SEC commissioners should use the Bitcoin narrative on the Ethereum case.
“…For that and the other reasons described in this letter, approval of the Exchange’s proposal is the appropriate action for the Commission to take,” Coinbase noted.
According to Paul Grewal, the Chief Legal Officer at Coinbase, Ethereum has never been a security both before the merger and after the event. Grewal added that the Ethereum network has demonstrated a strong decentralized system through its proof-of-stake (PoS) consensus mechanism.
Today @coinbase responded to @SECGov's request for comment on the proposed @Grayscale Ether Trust ($ETHE) ETP. 27 pages and 96 citations that provide the (1) legal, (2) technical, and (3) economic rationale for approval. 1/6
— paulgrewal.eth (@iampaulgrewal) February 21, 2024
With the high Ethereum liquidity, and the ability to fight fraud and manipulation, Grewal is confident the approval of Grayscale’s ETH is the right decision for the market.
Approval Risk
The inevitable approval of spot Ethereum ETFs in the United States has raised concerns over possible concentration risk. With institutional funds expected to run in hundreds of billions of dollars in the coming years to the Ethereum market, some analysts fear the network’s decentralized nature could be compromised.
Moreover, a single entity could be chosen to stake the ETF assets, thus concentrating voting power. Currently, Lido DAO (LDO) has a 31.5 percent share of all the staked Ether, according to Dune analytics.
The speculation of an inevitable approval of spot Ether ETFs in the United States has increased the asset’s demand from whale traders. As a result, ETH price has rallied more than 35 percent in the past four weeks to trade around $3,002 on Thursday. According to the weekly Auto Fibonacci Extension, Ethereum price is aiming at $3,500 soon before rallying to a new all-time high in the near term.
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