Commodity, security or currency?

We humans think in pigeonholes. Everything has to be neatly classified and assessable, that gives order and security. Cryptocurrencies are an exception – an exception that is soon to change. Because in order to drive forward regulatory efforts around the globe, the authorities and legislators need a classification in order to be able to create corresponding sets of rules with responsibilities, etc.

SEC chief forges ahead

The powerful US Securities and Exchange Commission (SEC) would like to have more control over cryptocurrencies and has been in a legal battle with Ripple Labs for years. The SEC has so far categorised cryptocurrencies as securities, but now SEC boss Gary Gensler has changed his tune and wants to classify Bitcoin as a commodity. In a recent CNBC interview, Gensler addressed the classification of cryptocurrencies. He is willing to publicly define Bitcoin as a commodity – but this is not the case for the hundreds of other cryptocurrencies.

He is thus fuelling the debate about whether cryptocurrencies are commodities, securities or currencies. The determination of the respective category has a number of legal implications that differ seriously in terms of trading, buying and selling. It’s about control and also a lot of money for the state.

Only bitcoin a commodity

Gensler on cyber currency: “Investors are hoping for a return on tokens, just like when they invest in other financial assets we call securities,” Gensler classifies. “Many of these financial assets, crypto-financial assets, have the key characteristics of a security and therefore fall under the jurisdiction of the SEC. […] The only cryptocurrency I would call a commodity is Bitcoin. Bitcoin has already been called a commodity by my predecessors and other people,” the SEC chairman said. If this assessment prevails, Bitcoin trading will no longer fall under the jurisdiction of the SEC in the future, as it is only responsible for US securities trading.

The CFTC (Commodity Futures Trading Commission) would then be responsible for regulating trading in the commodity Bitcoin. The CFTC would then regulate bitcoin trading, although there is no lack of willingness to cooperate: “There are two major market regulators in this country,” says Gensler. Both institutions have already proven many times that they can cooperate well, he said.

End of lawsuits?

Many crypto companies have been charged with illegal securities sales by the SEC in court. In addition to Ripple, a trial is underway against the South Korean Terra boss Do Kwon, whom the SEC charged with illegal securities trading. The verdicts in the ongoing trials are eagerly awaited by the scene, as they have a groundbreaking character for future legal disputes.

If cryptocurrencies are indeed classified as securities, this will have far-reaching consequences: Issuers must register with the SEC and comply with strict disclosure requirements, which is currently not always handled so transparently in some projects. Here, control by the CFTC would have its advantage, as its regulations are not quite as strict.

Share This Story, Choose Your Platform!