Most crypto traders are currently preoccupied with recent cryptocurrency declines in what has become known as the “crypto winter.” Others–such as those with the Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC)–have their sights set on something more legalistic.
The Commodity or Security Debate
The debate over which federal agency should regulate the crypto market has recently attracted much attention. The CFTC is winning this debate as of now, and SEC Chairman Gary Gensler has something to say about it.
“The law is clear on this,” said Gensler in an interview with CNBC Monday. “I believe, based on the facts and circumstances, most of these tokens are securities.”
It’s necessary to have a basic grasp of the technical language of the two to understand why this is important in the crypto world. So, securities produce returns from common enterprises or companies. A commodity is a “basic good” that can be bought, traded or exchanged. Like gold.
But the general public–and even lawmakers on Capitol Hill–believe the crypto market should fall under the CFTC’s purview.
The reason for this is that cryptocurrencies falling under the umbrella of the SEC could change the industry. Securities are strictly regulated–demanding greater transparency and increased reporting. This isn’t to suggest that the crypto market is a shady operation but commodities are less regulated.
Additionally, three bills have been put on the floor in Congress this year, all suggesting the CFTC be the primary regulator of the crypto market: the “DIgital Commodities Consumer Protection Act of 2022,” the “Responsible Financial Innovation Act” and the “Digital Commodity Exchange Act of 2022.”
Still, Gensler isn’t buying it.
“Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities,” said Gensler. “Given that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and have to register with the Securities and Exchange Commission in some capacity.”
He may be right but many crypto assets, like Bitcoin and ether, possess the characteristics of a commodity. These are ones that are decentralized by nature and don’t produce any returns. Additionally, cryptocurrency can stand in place of money, so it has value.
This back-and-forth debate over who should be the regulator doesn’t change the notoriety of cryptocurrency, however. Crypto is a new asset class. And CFTC Chairman Rostin Behnam acknowledges this.
“There are different components and characteristics of this asset class as opposed to traditional asset classes,” said Behnam. “We have to rely on 70-year-old case law to determine what’s a security, what’s a commodity.”