Coinbase and SEC in Crucial Talks Over Grayscale's ETH ETF Amidst Crypto Bull Run

Coinbase, the largest cryptocurrency exchange in the US, has urged the Securities and Exchange Commission (SEC) to approve Grayscale's proposed spot Ethereum exchange-traded fund (ETF), according to a letter filed by the regulator on Wednesday.

Grayscale, the world's largest digital asset manager, has applied to convert its existing Ethereum Trust, which holds over US$9 billion worth of ether, into a spot ETF that would track the price of the second-largest cryptocurrency. A spot ETF would allow investors to buy and sell ether directly, unlike a futures-based ETF that relies on contracts.

Coinbase, which acts as the custodian for Grayscale's Ethereum Trust, met with the SEC's Division of Trading and Markets on March 6, 2024, to present its case for the approval of the spot ETF. Coinbase's chief legal officer, Paul Grewal, argued that ether shares in the proposed ETF should be treated as commodities, similar to existing Bitcoin ETFs that have been approved by the SEC.

Coinbase also addressed the SEC's concerns about potential fraud and manipulation in the ether market, which have been cited as reasons for rejecting previous crypto ETF applications. Coinbase highlighted the resilience and liquidity of the spot market, as well as its plan to implement a surveillance-sharing agreement with the Chicago Mercantile Exchange (CME), which offers ether futures contracts, to enhance security and transparency.

The meeting between Coinbase, Grayscale, and the SEC comes amid a bull run for ether, which has surged over 300% since the start of the year, reaching an all-time high of US$4,362 on March 10, 2024. The demand for ether has been driven by the growth of decentralized applications (DApps), decentralized finance (DeFi), and non-fungible tokens (NFTs), which are built on the Ethereum blockchain. Analysts have expressed mixed reactions to the meeting, with some viewing it as a positive sign, while others cautioning against over-optimism.