Bitcoin Belongs to the Commodity Asset Class and Should Be Regulated by the CFTC

The Chairman of the Securities and Exchange Commission (SEC) Gary Gensler two days ago confirmed the regulatory agency’s stance that bitcoin belongs to the commodity asset class (commodity), but refrained from extending the label to any other cryptocurrency in an interview with CNBC.

Gensler singled out bitcoin as an example of crypto assets that should be regulated under the Commodity Futures Trading Commission (CFTC), as he had done previously, but he did not want to comment on other cryptocurrencies.

However, Gensler added that many other crypto financial assets have key attributes of securities (securities), noting that the main similarity between the ideas is that ‘the investing public hopes for a return.’

The regulatory framework surrounding cryptocurrencies and digital assets has focused on interpreting those that function as securities, such as stocks, and those that act as commodities, such as gold. The previous SEC administration believed that both bitcoin and ethereum were commodities, but Gensler only mentioned bitcoin in his recent comments and had previously avoided answering questions about ethereum specifically.

Before Gensler took the helm of the SEC, the Commission’s leadership publicly adopted the stance that both bitcoin and ethereum are not securities, the latter being somewhat controversial, given that ethereum was launched in 2014 through an ICO that would be considered an illegal securities offering by today’s standards.

In 2018, William Hinman, the Director of the Division of Corporation Finance at the SEC, stated that he believed both ethereum and bitcoin should be classified as commodities because each cryptocurrency is sufficiently decentralized and does not have a central entity whose efforts are a key determining factor.

Still, the question remains whether ethereum should be considered a security today. This issue has become a contentious point in the SEC’s ongoing lawsuit against Ripple worth $1.3 billion, regarding the company’s sale of XRP, which the SEC claims is an unregistered securities offering. This may help explain Gensler’s reluctance to comment on ethereum or any other crypto asset besides bitcoin.

Regarding the regulation of digital assets in the U.S., Gensler stated today that it is primarily a dual effort between the CFTC and the SEC, but there is also overlap with banking regulators in terms of addressing stablecoin issues. He continued that many crypto tokens are potentially ‘noncompliant’ and that much work needs to be done to provide actual protection for the investing public.