Similar to its bitcoin trading fund, Grayscale has also submitted an application for converting its current Ethereum Trust product into a spot Ethereum exchange-traded fund (ETF).
Crypto exchange Coinbase has also added its support to the said application, urging the US Securities and Exchange Commission (SEC) to give its approval.
The report
Coinbase is an important figure in the crypto ecosystem, as it is the only exchange that is traded on the US stock exchange.
The crypto exchange also serves as the custodian for Grayscale’s Ethereum Trust and it submitted a detailed report that highlighted the regulatory compliance and market maturity of Ethereum.
The exchange argued that due to these two aspects, Ethereum is also a commodity, just like Bitcoin (BTC).
In a letter, Coinbase said that the market was well aware that ETH is not classified as a security. It pointed out that senior officials of the SEC had also said the same on various occasions in the last six years.
It added that even after ETH’s merge, neither the SEC nor its personnel had disavowed this position.
The crypto industry has been pushing for regulatory clarity about the true legal nature of digital assets and crypto tokens for years.
The regulatory issues
Token and crypto issuers have resisted the idea of digital assets being classified as securities heavily because it would increase their regulatory burden.
They could also be exposed to potential lawsuits by investors when their expectations and goals are not met which would also limit their ability to cater to a broader global market significantly.
Coinbase stated that the reasons that the Commission considered for the approval of spot Bitcoin ETFs also apply to ETH as far as the rule change is concerned.
Ethereum
The crypto exchange went as far as praising the decentralized nature of Ethereum, as it makes it extremely effective in mitigating risks of manipulation and fraud.
The SEC also considered this topic and argued that given its current conditions, Ethereum does not fit the definition of security.
This is because there is not a single group, company, or entity that can control the network, play a determining role in fulfilling investors’ expectations, and decide its model unilaterally.
This support from Coinbase comes at a time when there is a broad discussion happening in the financial industry about the potential risks of concentration in the Ethereum network.
It is related to spot Ethereum ETFs, which also come with staking options. These concerns have been shared by financial giants like JPMorgan and S&P Global.
It emphasizes the need to diversify staking strategies to eliminate the concept of network centralization in the Ethereum network.
The analysts have said that the mix of validators who participate in the consensus mechanism of the Ethereum network could increase due to ether staking ETFs.
Therefore, there could be significant effects of US spot ether ETFs on concentration risks, whether they are positive or negative. This makes it even more important to constantly monitor the risk.
In January, the SEC approved spot Bitcoin ETFs, which was a major regulatory milestone for the crypto industry.