- Coinbase argues for treating Ethereum as a commodity.
- Coinbase Derivatives to list futures for Dogecoin, Litecoin, and Bitcoin Cash.
The SEC lacks substantial reasons to reject applications for an ETH-ETF, according to Coinbase’s Chief Legal Officer, Paul Grewal.
Sigh… again with the ETH misinformation as we await a decision on ETH ETPs. Ok—let’s talk about some basic facts about Ethereum. Millions of Americans hold ETH; it has been vital to crypto since its 2015 launch; and ETH is a commodity, not a security. 1/10
— paulgrewal.eth (@iampaulgrewal) March 20, 2024
The executive outlined key facts about Ethereum, highlighting its widespread adoption among millions of Americans since its inception in 2015 and its integral role in the cryptocurrency ecosystem.
According to the expert, the Commission has long regarded the second-largest cryptocurrency by market capitalization as a commodity rather than a security. The CFTC and federal courts have unanimously affirmed this status.
The Coinbase lawyer referenced statements by the agency’s Director of Corporate Finance, William Hinman, from 2018. He also recalled Gary Gensler’s testimony before Congress prior to his appointment as SEC Chair, where he held a similar stance.
The executive emphasized that Ethereum does not meet the criteria of the Howey Test, used to determine securities. He stressed consistency in the asset’s oversight, including its listing on CFTC-regulated futures exchanges since 2021.
In light of these established regulatory provisions, Grewal urged the SEC not to create unnecessary obstacles for the approval of spot Ethereum-ETFs.
He highlighted that questioning the regulatory status of the second-largest cryptocurrency contradicts longstanding precedent and could undermine investor confidence. The expert pointed to the importance of adhering to established legal principles in the interests of all stakeholders.
“The Commission has no substantial reasons to reject applications […]. We expect they will not attempt to invent another, questioning the long-established regulatory status of Ethereum, which the SEC has repeatedly endorsed. That’s not how the law works,” concluded the expert.
A Headache for the SEC
On March 21, it was also announced that Coinbase plans to list non-deliverable futures based on Dogecoin, Litecoin, and Bitcoin Cash on its derivatives platform starting April 1.
Coinbase Derivatives will begin futures trading on DOGE, LTC, and BCH on April 1. The exchange is leveraging self-certification with the U.S. CFTC to quickly list and ensure compliance. All three cryptocurrencies are derived from Bitcoin and are considered commodities by the SEC.…
— Wu Blockchain (@WuBlockchain) March 21, 2024
Coinbase’s initiative raises “interesting regulatory questions,” according to Bloomberg analyst James Seyffart.
This is interesting… wonder if the SEC objects to these being classified ‘commodities futures’ vs ‘securities futures’. These all forked from Bitcoin so “these are securities” claims would be hard to make after spot #Bitcoin ETF approvals. Might be why Coinbase chose them? https://t.co/PRCxzQEYbi
— James Seyffart (@JSeyff) March 20, 2024
“This is interesting…, does the SEC object to these being classified as ‘commodities futures’ rather than ‘securities futures’? Given their origin from Bitcoin, claiming they are investment contracts would be difficult, especially after spot Bitcoin ETF approvals. Coinbase’s choice might be strategic,” noted the expert.
The Battle for ETH-ETF
The previously disclosed thread by Grewal was a response to the regulator’s decision on March 20 to postpone the verdict on VanEck’s ETH-ETF approval application. The agency extended the review period until May 23. The Commission had previously reached similar conclusions on comparable proposals.
In the race to launch exchange-traded funds based on the second-largest cryptocurrency, Franklin Templeton, BlackRock, Fidelity, and Invesco with Galaxy are also participating.
In early March, Grayscale and Coinbase discussed with the agency the conversion of ETHE into a spot Ethereum-ETF. Amid low engagement in negotiations with issuers, Bloomberg analyst Eric Balchunas halved the probability of the SEC registering the product in May—from 70% to 35%.
Among the reasons, FOX Business journalist Eleanor Terrett cited pressure on Gensler from Congress. Earlier, U.S. senators urged the regulator not to allow the approval of new crypto-ETFs, pointing to the “enormous risks” of this instrument.
In January, the agency’s commissioner Hester Peirce called for the registration of an exchange-traded fund based on the second-largest cryptocurrency without resorting to a court process.
On March 20, the Swiss-based non-profit Ethereum Foundation reportedly received a confidential request from an unnamed “government body,” according to media reports.
According to Fortune, it may originate from the SEC. Several unnamed American companies told journalists they received subpoenas regarding the classification of the second-largest cryptocurrency as a security.