The legal definition of cryptocurrencies remains unclear
Gensler only wants to classify Bitcoin as a commodity
A final definition should put an end to legal ambiguity
Gary Gensler is considered a connoisseur of the crypto scene. His urgent warning against promises of excessively high returns on the crypto market – certainly an allusion to the crypto lending platform Celsius, which is currently in trouble – attracted a lot of attention. In a recent interview with CNBC, he once again commented on digital currencies. Given his influential position, it’s worth reading his crypto ratings closely.
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Cryptocurrencies: Commodities, Securities or Currencies?
There is a heated debate in crypto circles about whether cyber currencies should be classified as commodities, securities or currencies. What at first glance may appear to be a tedious, philosophical discussion with an end in itself character actually has tangible legal consequences. The legal regulations for buying, holding and selling are extremely different for commodities, securities and currencies. The latest statements by the head of the US Securities and Exchange Commission (SEC), Gary Gensler, are likely to have a major impact on this debate.
Gensler: Only bitcoin can be classified as a commodity
In the “CNBC” interview, Gensler went into the classification of cyber currencies. He is ready to publicly define Bitcoin as a commodity – but this is not the case with hundreds of other cryptocurrencies such as Ether, Cardano, Solana or Ripple (XRP). With the exception of Bitcoin, all the other cyber currencies are, in his opinion, securities. “Investors hope for a return on tokens, just like when they invest in other financial assets that we call securities,” Gensler said. “Many of these financial assets, crypto financial assets, have the key characteristics of a security and therefore fall under the jurisdiction of the SEC.” Gensler had already repeatedly mentioned Bitcoin as the only cryptocurrency for which he could agree in principle to be classified as a commodity: “The only cryptocurrency that I would call a commodity is Bitcoin. Bitcoin was already called a commodity by my predecessors and other people.” , according to the SEC chairman.
Will bitcoin trading no longer be subject to SEC oversight?
Should Gensler’s definition prevail, the SEC would no longer monitor trading in the original cryptocurrency Bitcoin. The SEC is responsible for US securities trading, while another body called the Commodity Futures Trading Commission (CFTC) is responsible for regulating commodities trading. The CFTC would then regulate bitcoin trading. Gensler: “There are two major market regulators in this country (USA, editor’s note).” Both institutions have already proven several times that they can cooperate well – with the common goal of guaranteeing fairness, transparency and investor protection for the market with digital assets.
Lots of crypto lawsuits over security definition
Many crypto companies have been sued by the SEC for illegal securities sales. The most famous example of this is probably Ripple – the crypto service provider, which refinances itself by selling its own cryptocurrency Ripple (XRP), is accused by the SEC of illegally selling securities (i.e. its own tokens). The sales reportedly went unreported to the SEC. There is also a trial in the USA against the South Korean Terra boss Do Kwon, whom the SEC has accused of the same reasons (illegal securities trading). Do Kwon’s alleged crime fell in 2021, before the crash of the two Terra coins UST and LUNA.
The judgments in the court cases that are still ongoing are likely to have a pioneering character for future legal matters. If cyber currencies are actually and finally defined as securities, this would have far-reaching implications. Securities can only be legally sold to the public if the issuer registers with the SEC and adheres to strict disclosure requirements. In contrast, the rules for commodities trading administered by the CFTC would be less stringent overall. The CFTC, in turn, recently designated ether as a commodity alongside bitcoin, which in turn implies an overlapping of competencies at the world’s second largest cryptocurrency. There is still a lack of regulatory clarity here. Gensler, who incidentally was the head of the CFTC a few years ago, recently announced that he was working with the CFTC on a “letter of intent” on crypto jurisdiction. Meanwhile, many crypto investors are hoping for a definitive definition that would put an end to major uncertainties surrounding trading in digital tokens, at least in the United States.
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