Coinbase Defends Crypto ETFs Against Senatorial Criticism

On March 15, Coinbase’s chief legal officer, Paul Grewal, voiced his support for the approval of Bitcoin exchange-traded funds (ETFs). This came in response to the letter of two U.S. senators requesting the Securities and Exchange Commission (SEC) for more stringent crypto regulations.

The senators had raised concerns regarding the potential risks involved in expanding crypto ETFs beyond Bitcoin. However, Grewal respectfully disagreed, stating that the evidence contradicts their viewpoint.

Evidence Supports Crypto ETF Approval

Grewal, in a post on X, based his argument on the fact that the tendered evidence was not in line with the proper perspective.

Respectfully Senators, the evidence points exactly the opposite way. We have discussed our analysis with SEC staff and would be happy to do the same for you and any other policy makers who have questions. 1/7

— paulgrewal.eth (@iampaulgrewal) March 15, 2024

He pointed to the quality metrics of cryptocurrencies like Ether (ETH), which surpassed the largest traded equities.

He particularly highlighted the deep and liquid nature of ETH’s spot market, noting that only two S&P 500 stocks have a higher notional dollar trading volume.

Additionally, Grewal emphasized that the correlation between Ether’s futures and spot markets is similar to that of Bitcoin. Hence making them suitable for market surveillance.

He further argued that if the SEC approves Bitcoin ETFs, it should also approve Ether ETFs.

“When compared to Bitcoin, ETH’s future and spot market demonstrate EXACTLY the same type of high and consistent correlation that would enable market surveillance,” said Grewal.

Coinbase’s defense stems from a March 9 meeting with the SEC officials concerning a rule change for launching spot Ether ETFs.

Meanwhile, some analysts have speculated that Grayscale Investments, a crypto asset manager, may be strategically using its futures ETF application to push for the approval of its spot Ether ETF, which the SEC has postponed.

“Grayscale is playing Chess, not checkers here. They’re likely hoping to force the SEC into issuing a 19b-4 decision on an ETH futures ETF,” said Bloomberg ETF analyst James Seyffart.

However, there are concerns that the SEC may reject pending ETH ETF applications due to issues about the correlation between spot and futures markets.

In his remarks, Nate Geraci, president of the ETF Store, believed that Coinbase’s strong support for spot Ether ETFs could lead to a conflict with the regulator. This is because the deadline for an ETH ETF decision is May 23.

Geraci criticized the SEC’s stance as political, highlighting the investors’ demand for spot BTC ETFs.

SEC Faces Congressional Scrutiny Over Fake Bitcoin ETF Approval Tweet

Two U.S. senators, D Vance (R-OH) and Thom Tillis (R-N.C.), have written to the SEC chair, Gary Gensler, regarding a false tweet from the SEC’s Twitter account.

The tweet inaccurately stated that multiple spot Bitcoin ETFs had been approved, leading to confusion and market instability.

The letter, directed to Gensler, expressed the senators’ concerns about the SEC’s social media communications and queried the regulator’s cybersecurity protocols.

They requested an account of the false announcement – how it was disseminated and whether it resulted from a cybersecurity breach.

Additionally, the duo asked for details on the SEC’s strategies to investigate the mistake and address any financial losses incurred by investors.

Notably, the false announcement, which Gensler promptly retracted, led to significant Bitcoin price fluctuations. This resulted from confusion among investors concerning the regulator’s decision on spot Bitcoin ETFs.

It could be recalled that Bitcoin’s price dropped from a two-year peak of $47,680 to about $45,500 upon the circulation of the false announcement.

The SEC later clarified that its Twitter account had been “compromised” and an “unauthorized tweet was published.” The regulator then stressed that it had not authorized the listing and trading of any spot Bitcoin exchange-traded products.

This incident has prompted broader discussions about the regulatory landscape for cryptocurrencies and the necessity for more explicit directives. But, Gensler has always been outspoken in making cautionary statements about approving Bitcoin ETFs, which he said is not the same as Bitcoin approval.

Meanwhile, the legal disputes between Coinbase and the SEC introduced another dimension to the ongoing discourse on how digital assets should be regulated.

Coinbase has contested the SEC’s rejection of its request for crypto-specific regulations, underscoring the absence of regulatory transparency in the sector.