Coinbase Legal Officer Explains Why Ethereum Is Not a Security

Coinbase’s Chief Legal Officer, Paul Grewal, has taken a strong stance on the ongoing debate regarding Ethereum’s status as a security or commodity.

Amidst the US Securities and Exchange Commission’s (SEC) rigorous legal efforts to potentially classify Ethereum as a security, Grewal emphasizes its longstanding recognition as a commodity.

The SEC’s scrutiny of Ethereum has intensified following the transition to a Proof-of-Stake (PoS) governance model in September 2022. Such actions have sparked concerns within the crypto industry regarding the future of Ethereum Exchange-Traded Funds (ETFs).

This move by the SEC comes despite its previous approval of several spot Bitcoin ETFs, hinting at a more stringent approach towards Ethereum-based financial products.

Grewal points out that Ethereum, since its inception in 2015, has been an integral part of the crypto market, held by millions of Americans. He references past statements by senior SEC officials and even Gary Gensler before his tenure as SEC Chair, affirming Ethereum’s status as a non-security.

“In 2018, the Securities and Exchange Commission has said that regardless of what it might have been in 2014, [Ethereum] is now sufficiently decentralized that will consider it not a security,” Gensler said.

Furthermore, Grewal cites the Commodity Futures Trading Commission’s (CFTC) classification of Ethereum as a commodity. This is backed by the trading of Ethereum futures contracts on CFTC-regulated exchanges since 2021.

“I believe [Bitcoin, Ethereum, Litecoin and Tether] are a commodity. And because they are listed on CFTC exchanges, we do have a regulatory relationship – obviously with the derivatives market and that product, but the underlying market as well,” CFTC Chair Rostin Behnam said.

In addressing the SEC’s current stance, Grewal criticizes the agency’s attempt to reevaluate Ethereum’s classification. He argues that such actions disregard the established regulatory consensus and the interests of American investors.

He also highlighted that Ethereum does not meet the criteria of an “investment contract” under the Howey test.

“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,” Grewal stated.

Grewal’s arguments reflect the broader debate on cryptocurrency regulation and the importance of clarity and consistency in regulatory approaches. His advocacy for Ethereum’s recognition as a commodity reflects a significant effort to safeguard the innovative potential of cryptocurrencies.

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