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United States-based publicly traded cryptocurrency exchange Coinbase met with the Securities and Exchange Commission (SEC) to discuss the Ethereum (ETH) exchange-traded fund (ETF) proposed by asset manager Grayscale Investments.
According to recently filed documents, the crypto exchange described the proposed product to the regulator that Grayscale filed for back in October. If accepted, the proposal would convert the Grayscale Ethereum Trust close-ended fund into a spot ETF.
Coinbase’s presentation also addressed concerns of market manipulation, and claimed that a “comprehensive surveillance-sharing agreement with the Chicago Mercantile Exchange (CME) will assist in surveilling for fraud and manipulation.” The document reads:
Spot markets for ETH are highly indicative of a market resilient to fraud and manipulation. […]
As with Bitcoin, the Exchange’s comprehensive surveillance-sharing agreeement with the CME will assist in surveilling for fraud and manipulation.”
The report follows the SEC approving eleven Bitcoin spot ETFs back in January. At the time, SEC chairman Gary Gensler stated that “investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto.”
Nate Geraci — president of investment advisor ETFStore — argued that the SEC would have a hard time finding reasons to disapprove a spot Ethereum ETF. He explained that Coinbase’s analysis found a correlation between the Ethereum future and spot market that is as strong as that found in Bitcoin markets. Furthermore, he highlighted that the SEC also already approved a futures-based ETF by the CME.
Coinbase analysis shows correlation b/w ether futures & spot markets every bit as strong as w/ bitcoin markets…
Add-in that SEC approved CME-traded ether futures ETFs and I’m not sure what grounds for disapproval of spot ether ETFs would be.
— Nate Geraci (@NateGeraci) March 8, 2024
Why is an Ethereum ETF a big deal?
The introduction of an Ethereum spot ETF to the market would represent a significant development with multifaceted implications. Primarily, it would enhance the accessibility of Ethereum for institutional investors, offering a pathway to investment that bypasses the complexities and security concerns associated with direct cryptocurrency ownership. This streamlined access is expected by many to bolster Ethereum’s market presence by attracting substantial institutional capital.
Furthermore, the market would likely see an improvement in Ethereum’s liquidity. An ETF facilitates easier buying and selling of its underlying asset, in this case, Ethereum, thereby reducing the impact of large trades on the asset’s price. Such liquidity is crucial for the health of a market as it attracts a broader investor base by decreasing slippage.
