Coinbase, the digital currency exchange giant, has formally addressed the Securities and Exchange Commission (SEC), advocating for the approval of a proposed rule change by NYSE Arca, Inc. to list and trade shares of the Grayscale Ethereum Trust as commodity-based trust shares. This move comes after various prominent financial players, including Fidelity and BlackRock, have applied for Ethereum ETFs. 

Ethereum as a commodity 

Central to Coinbase's argument is the classification of ETH as a commodity, not a security, a distinction critical for regulatory and market perception. This stance is supported by the regulation of ETH futures by the Commodity Futures Trading Commission (CFTC), various federal court rulings, and the absence of any contrary position from the SEC. 

Coinbase underscores the significant technological and operational safeguards inherent in Ethereum's blockchain that mitigate risks of fraud and manipulation.

Moreover, they highlight Ethereum's market robustness, evidenced by its market depth, tight spreads, and consistent price correlation across trading platforms, which compares favorably even against the stalwarts of the S&P 500.

Surveillance and market integrity 

A pivotal element of Coinbase's proposal is the comprehensive surveillance-sharing agreement with the Chicago Mercantile Exchange (CME), facilitated by their common membership in the Intermarket Surveillance Group. This agreement is instrumental in monitoring the ETH futures market, which closely mirrors the dynamics of the ETH spot market. 

The surveillance mechanism is expected to play a crucial role in safeguarding against fraudulent and manipulative practices, ensuring the integrity of the Ethereum market. 

Coinbase's argument draws parallels with the SEC's rationale in approving spot Bitcoin exchange-traded products (ETPs)