Regulation
Are cryptocurrencies securities or commodities? Examining Regulatory Overlap and Its Impact – BitKE
Determining whether cryptocurrencies should be classified as securities or commodities has been a matter of controversy, as the distinction between the two categories, particularly in the United States, is not always straightforward.
Depending on the consulted regulator in the United States, which has been the center of crypto innovation, a crypto asset may be considered a security or commodity.
Regulatory Differences Between the SEC and CFTC
Two main regulatory bodies, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), exercise authority over crypto assets in the United States. However, the boundaries of their jurisdiction are blurred, leading to confusion among market participants.
The SEC oversees securities and applies the Howey test to determine whether certain cryptocurrencies are considered securities. Under this legal standard, stemming from a 1946 Supreme Court case, an asset can be classified as a security if it involves an investment of money with the expectation of profit derived primarily from the efforts of others.
On the other hand, the CFTC classifies cryptocurrencies such as Bitcoin and Ethereum as commodities, asserting jurisdiction over them through the Commodity Exchange Act. The differentiation between securities and commodities is essential because each classification involves distinct regulatory and legal obligations.
- Securities are financial instruments that represent a claim on the issuer, such as stocks, bonds and derivatives
- Raw materials are physical goods that are traded on exchanges in wholesale quantities. These can include agricultural products like corn and wheat, as well as precious metals like gold and silver.
This lack of clarity has led to a series of legal disputes, with both regulators sometimes asserting jurisdiction over the same crypto assets. Market participants are unsure of the legal status of their investments as companies operate in a fluctuating regulatory landscape.
More recently, the Ethereum Infra company, ConsenSys, filed a complaint against the SEC and its commissioners, arguing that the SEC illegally claims that Ethereum’s $ETH token is a security.
“The United States Securities and Exchange Commission is seeking to regulate ETH as a security, even though ETH has none of the attributes of a security – and even though the SEC has already told the world that ETH is not a security and is not subject to SEC statutory rules. jurisdiction,” according to the lawsuit filed in a Texas court on April 25, 2024.
🇺🇸REGULATIONS | US Notifies ConsenSys of Legal Action Against MetaMask as It Calls ETH Security
The SEC reportedly finds that MetaMask Swaps and Staking services violate federal security laws because ConsenSys is not a broker-dealer. A broker-dealer is a… pic.twitter.com/HemC76sh1T
–BitKE (@BitcoinKE) April 30, 2024
SEC Chairman Gary Gensler has previously stated that all crypto tokens except bitcoin are securities.
That said, the matter could be resolved thanks to recent legislation. On May 22, 2024, the United States House of Representatives passed a historic bill that establishes a federal framework to regulate digital assets, define jurisdiction between the CFTC and the SEC.
🇺🇸REGULATIONS | US Lawmakers Pass FIT21 Establishing Federal Crypto Regulatory Framework
Therefore, crypto companies and digital asset issuers would have a framework to determine if and how their assets are securities under the conditions set out by the bill, which… pic.twitter.com/wlki0AhXLG
See also
–BitKE (@BitcoinKE) May 23, 2024
The bill, which still needs to pass the Senate before being approved by the president, also allows issuers to self-certify their assets as digital products.
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