In a recent statement that has sent shockwaves through the cryptocurrency industry, a former commissioner of the U.S. Commodity Futures Trading Commission (CFTC) has suggested that Ethereum (ETH) can be classified as both a security and a commodity. This assertion by the former regulatory official has reignited the debate surrounding the regulatory status of cryptocurrencies, especially in the case of Ethereum, which is the second-largest digital asset by market capitalization. Let’s delve deeper into the implications of this statement and its potential impact on the crypto market.
According to a former commissioner of the United States Commodities Futures Trading Commission, Ethereum’s native token, ETH, currently valued at $1,828, has the potential to be classified as both a commodity and a security.
Former CFTC Commissioner and former General Counsel at the Securities and Exchange Commission, Dan Berkovitz, stated during a recent episode of Laura Shin’s Unchained podcast on May 23 that Ethereum’s Ether (ETH) could potentially come under the regulatory purview of both agencies, implying the possibility of dual jurisdiction.
The prevailing ambiguity surrounding the legal classification of Ether can be attributed to conflicting statements issued by the CFTC and the SEC. In the past six months, the CFTC has consistently referred to Ether, along with several other cryptocurrencies, as a commodity.
Regulatory ambiguity: SEC’s Gary Gensler leaves Ether’s Legal status undefined
On the other hand, under the leadership of Gary Gensler, the SEC has not explicitly assigned a specific legal classification to Ether. During an oversight hearing in April, Gensler indicated that, apart from Bitcoin (BTC), which he acknowledged as a non-security, everything else should be considered security without providing further details or elaboration.
Despite the potential contradiction, Berkovitz highlighted that an asset like Ethereum could be classified as both a security and a commodity, citing the existence of overlapping legal definitions within the domains of commodities and securities. He said, “The law is clear. Something can actually be both a commodity and a security.”
The Complexity of Commodities: Berkovitz Sheds light on the definition and scope of “Commodities” in relation to Ether
Berkovitz clarified that the confusion stems from the fact that commodities extend beyond physical items such as “wheat” or “oats.” According to him, anything that is subject to a “futures contract” can be categorized as a commodity. This elucidates why the term “futures” is incorporated into the CFTC’s name.
Another perspective offered by Berkovitz suggests that security, as defined by the Securities Act and the Exchange Act, encompassing instruments like notes and investment contracts, can also become the underlying asset of a futures contract. Consequently, such securities would fall within the regulatory jurisdiction of the CFTC as well.
The primary focus of the CFTC lies in regulating futures and swaps related to commodities, whereas the SEC’s jurisdiction is solely dedicated to securities. However, if an asset qualifies as a commodity according to the CFTC and also meets the criteria of security according to the SEC’s definition, it is plausible for both regulatory bodies to exercise jurisdiction over it.
Critique of SEC’s Position
During the podcast, Collin Lloyd, a partner at the multinational law firm Sullivan & Cromwell, criticized the SEC’s assertion that all cryptocurrencies except Bitcoin should be classified as “securities” according to federal securities law.
Lloyd said, “I don’t see anything in the case law that tells me that some string of digits that operates on a blockchain can natively just be a security.”
“It’s kind of a weird question to be asking, ‘Is this digital asset a security or not?’ I think you should be asking, ‘Is this digital asset being sold as part of a securities transaction?’ That depends on the facts and circumstances.”
Significantly, Sullivan & Cromwell, which is presently involved in the FTX bankruptcy case, was enlisted by Coinbase on April 29 to provide assistance to the cryptocurrency exchange in its ongoing dispute with the SEC concerning ambiguous regulations.
In conclusion, the classification of Ethereum’s Ether (ETH) as both a security and a commodity remains a subject of debate. Former CFTC Commissioner Dan Berkovitz’s assertion that Ether can fall under the regulatory jurisdiction of both the SEC and CFTC highlights the complexity of defining cryptocurrencies within existing legal frameworks. The conflicting statements from regulatory bodies, such as the CFTC and SEC, contribute to the ongoing uncertainty surrounding Ether’s legal status.