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Are cryptocurrencies securities or commodities? Research on regulatory overlap and its effects – BitKE

Posted on by darion

Determining whether cryptocurrencies should be classified as securities or commodities has been a contentious issue because the distinction between the two categories, particularly in the United States, is not always straightforward.

Depending on the regulator consulted in the United States, which is the center of cryptocurrency innovation, a crypto asset may be considered a security or a commodity.

Regulatory differences between the SEC and CFTC

Two main regulators, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have authority over crypto assets in the US. However, the boundaries of their jurisdiction are blurry, which is a source of confusion among market participants.

The SEC oversees securities and uses the Howey test to determine whether certain cryptocurrencies qualify as securities. Under this legal standard, which dates back to a 1946 Supreme Court case, an asset can be classified as a security if it involves the investment of money with the expectation of profit primarily from the efforts of others.

On the other hand, the CFTC classifies cryptocurrencies such as Bitcoin and Ethereum as commodities, providing jurisdiction over them under the Commodity Exchange Act. The distinction between securities and commodities is crucial because each classification carries distinct regulatory and legal obligations.

  • Securities are financial instruments constituting a claim against the issuer, such as shares, bonds and derivatives
  • Raw Materials are physical goods traded on stock exchanges in wholesale quantities. These may include agricultural products such as corn and wheat, as well as precious metals such as gold and silver

This lack of clarity has led to a number of legal disputes with both regulators, sometimes having jurisdiction over the same crypto assets. Market participants are uncertain about the legal status of their investments while companies operate in a changing regulatory environment.

Recently, Ethereum infra company ConsenSys filed a lawsuit against the SEC and its commissioners, arguing that the SEC is unlawfully asserting that Ethereum’s $ETH token is a security.

“The U.S. Securities and Exchange Commission is seeking to regulate ETH as a security, even though ETH does not have any of the attributes of a security – and even though the SEC has previously told the world that ETH is not a security and is outside the scope of the SEC’s statutory jurisdiction, “ according to a lawsuit filed in a Texas court on April 25, 2024.

SEC Chairman Gary Gensler has previously said that all crypto tokens, except bitcoin, are securities.

Everything indicates that recently introduced legislation may solve this issue. On May 22, 2024, the U.S. House of Representatives passed landmark legislation establishing a federal framework for regulating digital assets, defining jurisdiction between the CFTC and the SEC.

The bill, which still needs to pass the Senate before being approved by the President, also allows issuers to self-certify assets as digital goods.

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