- Former CFTC Commissioner Claims ETH Can Be Both a Commodity and a Security
- Conflicting Statements from CFTC and SEC Fuel Legal Ambiguity Surrounding Ethereum
- Regulatory Uncertainty Hampers Crypto Companies as Ethereum’s Classification Debate Continues
Ethereum’s native token, Ether (ETH), can be classified as both a commodity and a security, according to former United States Commodities Futures Trading Commission (CFTC) commissioner Dan Berkovitz. In a recent episode of Laura Shin’s Unchained podcast, Berkovitz, who also served as general counsel at the Securities and Exchange Commission (SEC), highlighted the overlapping legal definitions that allow for such a classification.
The ongoing debate over Ether’s legal status stems from contradictory statements issued by the CFTC and the SEC. While the CFTC has consistently labeled Ether and several other cryptocurrencies as commodities over the past six months, the SEC has yet to assign a definitive legal category to Ether. SEC Chair Gary Gensler stated in an oversight hearing in April that all cryptocurrencies, except Bitcoin (BTC), should be treated as securities but provided no further clarification.
Understanding the Dual Classification
Asserting that a crypto asset can be both a commodity and a security, Berkovitz stated:
“The law is clear. Something can be both a commodity and a security.”
The former CFTC commissioner clarified that the confusion arises because commodities are not strictly limited to physical goods like wheat or oats. Instead, anything that falls under the scope of a futures contract can be classified as a commodity. He pointed out that the CFTC’s name includes the term “futures.”
Berkovitz added that securities, as defined by the Securities Act and the Exchange Act, can also be the subject of futures contracts, placing them under the jurisdiction of the CFTC.
Collin Lloyd, a partner at law firm Sullivan & Cromwell, challenged the SEC’s stance on categorizing all cryptocurrencies, except Bitcoin, as securities. He argued that the question should focus on whether a digital asset is being sold as part of a securities transaction rather than whether it inherently qualifies as a security. He stated:
“It’s kind of a weird question to be asking, ‘Is this digital asset a security or not?’ You should be asking, ‘Is this digital asset being sold as part of a securities transaction?’ That depends on the facts and circumstances.”
Sullivan & Cromwell has been actively involved in the FTX bankruptcy case and was hired by Coinbase to navigate its regulatory battle with the SEC.
Regulatory Uncertainty Hampers Crypto Companies
The discord between the CFTC and the SEC has implications for the compliance efforts of cryptocurrency companies and exchanges. With clear guidelines and collaboration between the two regulatory bodies, the certainty surrounding the status of digital assets like Ethereum persists. This regulatory ambiguity drives talent, innovation, and investment overseas, depriving the United States of potential benefits.
On May 23, CFTC Chair Rostin Behnam also faced the burning question on the Bloomberg podcast. He addressed the issue of Ethereum’s classification, particularly regarding other layer-1 blockchain assets like Solana. He noted that the existence of listed futures contracts for Bitcoin and Ethereum is driven by market demand and exchange initiatives rather than the specific categorization as commodities or securities.
Behnam emphasized that the CFTC examines the characteristics of financial assets to ensure compliance with the law and to determine if they fall within the definition of a commodity.
Ethereum’s Identity Crisis Continues
The ongoing debate surrounding Ethereum’s classification as a security or a commodity adds to the overall uncertainty in the United States crypto asset regulatory landscape. The legal battle between Ripple Labs and the SEC has also raised questions about the differential treatment of Ethereum and XRP. However, once the CFTC and the SEC can establish clear guidelines with guidance from Congress, the regulatory uncertainty in the United States is likely to persist, hindering the growth of the industry and encouraging innovation and investment to move overseas.