US crypto exchange Coinbase has clearly backed Grayscale's Ether ETF application in a letter to the SEC. As previously with the Bitcoin Trust, asset manager Grayscale also wants to convert its Ethereum Trust (ETHE) into an exchange-traded fund. Paul Grewal, Coinbase's Chief Legal Officer, announced that the company responded to the SEC's request. This was a comment on Grayscale's ETF application.The 27-page letter explains in great detail the legal, technical and economic reasons for approving the Ether ETF.

In a letter published by Grewal, Coinbase argues that the reasons for the SEC's approval of a Bitcoin ETF also apply strongly to a Grayscale Ether ETF, even more so in some respects. Coinbase presents five core arguments. Most importantly, they emphasize that ether is correctly classified as a commodity, not a security. This argument is supported by the approval of ETH futures by the U.S. Commodity Futures Trading Commission (CFTC), previous rulings by SEC officials, and various court decisions.

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

How Coinbase is campaigning for the ETF

But Coinbase's argument goes even further. The letter highlights Ether's proof-of-stake mechanism in a very positive light, pointing to factors such as decentralized ownership distribution and resilience against attempted fraud. In addition, the high trading volume, liquidity and narrow spreads speak in favor of the asset. Finally, Coinbase emphasizes that its partnership with the Chicago Mercantile Exchange enables effective monitoring of the Ether spot market for greater security.

Some analysts assume that the SEC could approve the first spot-ether ETFs as early as May of this year. Grayscale already filed an application to convert its Ethereum trust last October. Other major financial groups such as BlackRock and Fidelity have also filed ETF applications for the second-largest cryptocurrency. As has already happened with Bitcoin, an exchange-traded Ethereum fund would make access much easier, especially for institutional investors. However, Coinbase is not acting entirely altruistically - the crypto exchange could do great business as a potential custodian of the ether purchased by ETF issuers.