Former CFTC Director of Futures and Derivatives States 70% of Cryptocurrencies are Commodities
Securities in the United States are a category of asset that returns value for investors. This asset class is highly regulated in the name of consumer protection because of the risk that these assets will lose weight for investors. If an asset meets the Security and Exchange Commission’s (SEC) Howey Test criteria, it will be considered a security and regulated as such.
The Howey Test holds that if an asset requires the investment of money in a joint enterprise with an expectation of profit derived from the efforts of others, it is a security. An expectation of profit derived from the actions of others refers to the promotion of the potential returns of an asset to investors by a third party.
The status of cryptocurrencies as securities or commodities has long been debated in Congress to determine how to regulate the digital asset space. At today’s joint committee hearing between the House Agriculture Committee and Financial Services Committee—entitled The Future of Digital Assets: Measuring the Regulatory Gaps in the Digital Asset Markets—Matthew Kulkin, the former Director of the US Commodity Future Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight, suggested that over 70% of cryptocurrencies in circulation are commodities:
“70% of digital commodities traded today have already been deemed commodities by the CFTC as a body opposed to any chairman, commissioner, or staff.”
Kulkin offered this suggestion because most cryptocurrencies are subject to heavy retail investment and have had spot markets emerge around their trading. Today’s hearing seeks to work towards two outcomes. Firstly, to amend existing financial laws to account for digital assets to keep crypto in the United States. Secondly, this hearing seeks to determine which regulatory body in the US, either the SEC or CFTC, will have jurisdiction over regulating cryptocurrency.
Kulkin’s suggestion is accurate as most cryptocurrencies can be considered commodities because they are digital assets traded on various exchanges and have a standardized value and quantity. As a result, the value of cryptocurrencies is primarily determined by market demand and supply. This is similar to how market forces determine the value of commodities such as gold or oil.
The fixed supplies of specific cryptocurrencies and increasing demand can lead to price fluctuations like those observed in commodity markets. In addition, cryptocurrencies can also be used as a means of exchange, like commodities.