Coinbase wrote a letter to the SEC supporting the conversion of the Grayscale Bitcoin Trust (GBTC) in an ETF. The conversion is currently in the comment period, where members of the public are allowed to comment on the matter.

The letter makes a number of arguments in favor of conversion. Noting that GBTC offers a proven way for retail investors to gain exposure to bitcoin, Coinbase argues that the ETP vehicle should be allowed, especially since a futures product exists. The letter states that “Section 6(b)(5) prohibits exchanges from maintaining rules that unfairly discriminate between issuers. We are of the view that a rejection of Arca’s proposal would be in direct conflict with Section 6(b)(5) of the Exchange Act. As outlined in Arca’s proposal, the benchmark rate used to price Bitcoin contracts underlying futures-based ETPs is subject to the same pricing quality risks as the index used to price spot bitcoin and calculate the net asset value of spot ETPs.

Coinbase’s backing is noteworthy because as a bitcoin exchange, it stands to lose revenue if a one-time bitcoin ETF gets approved. Exchanges like Coinbase currently benefit from being one of the only ways for investors to gain exposure to bitcoin and cryptocurrency in general. An ETF wrapper would provide retail investors with a simple alternative form of access, potentially reducing the revenue Coinbase generates from transaction fees.

In a series of Tweets last December, Coinbase Chief Legal Officer Paul Grewal laid out the company’s position. “Good is good,” Grewal wrote. “Thumbs up to the SEC for allowing futures-based ETPs. But there is no rational basis for banning a spot ETP while allowing a futures ETP – both depend on the underlying price of bitcoin .

Grayscale filed for conversion in October 2021. In December, Grayscale also made noise when it prepared to sue the SEC with a pre-action letter claiming that the SEC’s decision to license an ETF forward but not spot bitcoin is “arbitrary and capricious.” Traditionally, derivatives like futures have been considered less secure than directly holding an asset, but bitcoin goes against that. The SEC shot down several spot ETFs but approved futures-based products.

Interested persons can follow these instructions to submit comments to the SEC by the February 25 comment closing date.

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