Ethereum’s native token, Ether, presents a unique case in financial regulation, having the potential to be recognized as both a convenience and a securityaccording Dan Berkovitzformer Commissioner of the United States Commodity Futures Commission (CFTC). In a recent Unchained podcast episode of Laura Shin, Berkovitz, also a former general counsel at the Securities and Exchange Commission (SEC), said that ETH could technically fall under the jurisdiction of these two regulatory bodies.
Regulatory vagueness: The commodity – security dichotomy
This view stems from continued ambiguity regarding Ethereum’s regulatory categorization, largely attributed to conflicting assertions by the CFTC and some DRY. Over the past six months, the CFTC has consistently qualified Ether and several other crypto coins of commodities. On the contrary, the DRYunder the direction of Gary Genslerrefrained from separately classifying Ether, saying during a supervisory hearing in April that all cryptocurrencies except Bitcoinshould be considered as securities (securities).
Beyond Physical Assets: Commodities in the Crypto Age
The idea that Ethereum can simultaneously qualify as a commodity and a security may seem paradoxical to some. However, Berkovitz argued that the nested legal definitions of commodities and securities effectively allow a asset to hold both classifications. A commodity is not limited to physical entities like wheat or oil; it extends to everything included in a ‘forward contract‘ – hence the term ‘future‘ in the title of the CFTC.
Securities and Commodity Overlap
Conversely, a security – defined by securities law and exchange law, encompassing things such as notes and investment contracts – may be the subject of a forward contract. This brings it into the jurisdiction of the CFTC. There CFTC mainly oversees the regulation of commodity futures and swaps, while the DRY exclusively regulates securities. However, if an asset is recognized as a commodity by the CFTC and simultaneously a security under the parameters of the SEC, the dual jurisdiction of the two regulators becomes plausible.
The digital asset debate: Securities or not?
I see nothing in the case law that tells me that a string of numbers operating on a blockchain may be natively a security.
Collin Lloyd
In the same podcast, Collin Lloydpartner of the multinational law firm Sullivan & Cromwellcriticized the SEC’s position that all cryptocurrencies except for Bitcoin, should be granted “security” status (security or title) under federal law. Lloyd pointed out that the question should move from “Is this digital asset a security or not? To “Is this digital asset being sold as part of a transaction securities?” – a determination that depends on the specifics of each case.
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