Coinbase CLO Says SEC Has No Justification to Deny Ethereum ETFs Amid Security Status Concerns

Coinbase CLO hopes the SEC does not fabricate reasons questioning the regulatory status of Ethereum as a non-security in order to deny the multiple ETH spot ETF applications. 

Coinbase’s chief legal officer (CLO) Paul Grewal has become the latest crypto stakeholder to comment on recent reports suggesting that the U.S. SEC is attempting to categorize Ethereum (ETH) as a security. 

Will SEC Approve Ethereum ETF As it Moves to Classify ETH as a Security?

For the uninitiated, the crypto industry received a report from Fortune yesterday stating that the SEC is pursuing a legal campaign that could classify ETH as a security. 

According to Fortune, the SEC ordered several U.S. crypto-related businesses to provide vital documents and financial records about the Ethereum Foundation that could help with its ongoing investigation. 

Although the SEC has yet to confirm or deny the report, crypto enthusiasts see the news as a stumbling block that could affect the potential launch of spot Ethereum ETFs.

It is worth mentioning that several asset managers, including BlackRock and Fidelity Investments, have already filed to launch Ethereum funds in the United States. 

Despite the SEC postponing its decision on some Ethereum ETF applications, several experts still believe the regulator would approve at least one filing by May. 

However, reports that the SEC is moving to categorize ETH as a security could reduce the chances of an Ethereum spot ETF launching by May. 

SEC Has No Good Reason to Deny Spot ETFs 

Reacting, Grewal stated that the SEC lacks justification to deny the multiple spot-based ETH ETF applications. 

The Coinbase CLO added that he hopes the commission does not fabricate any reason to question ETH’s long-established regulatory standing as a non-security.  

Factors Showing ETH Isn’t a Security 

Interestingly, Grewal highlighted some facts that show that Ethereum is not a security. 

According to Grewal, the SEC has consistently opined that ETH is a commodity, a remark that has allowed millions of Americans to hold the coin since its debut in 2015. 

He recounted how senior SEC officials, including former Director Bill Hinman and Gary Gensler, declared Ethereum as a non-security. 

In addition, Grewal also mentioned how SEC’s lawyers compared ETH to Bitcoin in the commission’s lawsuit against Ripple. It bears mentioning that the CFTC and the SEC agree that Bitcoin is a commodity, not a security.   

The CLO of Coinbase said both federal courts and the U.S. CFTC have also classified Ethereum as a commodity, with ETH contracts trading on CFTC-regulated exchanges. 

Ethereum Doesn’t Satisfy Howey Test 

Furthermore, Grewal said Ethereum does not satisfy all prongs of the Howey Test, a longstanding U.S.-based securities test. Specifically, he argued that Ethereum does not involve a contractual obligation related to a business enterprise, adding that the introduction of the Merge upgrade does not automatically make ETH a security. 

The Merge was a significant Ethereum upgrade introduced in 2022 that enabled the coin to transition to a Proof-of-Stake (PoS) algorithm from its original Proof-of-Work (PoW) model. 

Based on these facts, Grewal asserted that Ethereum is not a security and that the SEC has no justification for denying multiple applications for ETH spot-based ETFs. 

The SEC has no good reason to deny the ETH ETP applications. And we hope they won’t try to invent one by questioning the long established regulatory status of ETH, which the SEC has repeatedly endorsed. That’s not how the law works. And Americans deserve better. 10/10

— paulgrewal.eth (@iampaulgrewal) March 20, 2024