According to Dan Berkovitz, a former Commissioner of the Commodities Futures Trading Commission (CFTC), Ether has the unique distinction of being classified as a security and a commodity. The former CFTC commissioner noted that ETH’s dual classification places it within the regulatory purview of two federal agencies.
Different Legal Interpretations
During a recent appearance on a popular podcast on May 23, Dan Berkovitz, a former general counsel at the Securities and Exchange Commission (SEC), explained that ETH could come under the jurisdiction of two regulatory agencies. Contradictory declarations from the CFTC and the SEC have continued to fuel the legal ambiguity surrounding the status of Ether.
In the past six months alone, the CFTC has consistently categorized Ether, alongside several other cryptocurrencies, as a commodity. In contrast, the Gary Gensler-led SEC has refrained from explicitly assigning a distinct legal category to Ether.
In April, Gensler mentioned that all crypto assets, bar Bitcoin (BTC), should be considered a security. The notion that Ether can possess the dual attributes of security and a commodity may appear contradictory to some.
However, Berkovitz explained that overlapping legal definitions for commodities and securities allow an asset to be classified as both simultaneously. Moreover, Berkovitz highlighted the source of confusion, stating that commodities extend beyond tangible goods like “wheat” or “oats.”
He emphasized that anything included within “futures” can be classified as a commodity, which clarifies the inclusion of “futures” in the very name of the CFTC.
What Makes A Security?
Berkovitz explained the workings of securities, highlighting that they encompass various instruments, such as notes and investment contracts, per the Securities Act and Exchange Act. Interestingly, security can also serve as the underlying asset for a futures contract, thereby subjecting it to the regulatory jurisdiction of the CFTC.
This overlapping nature further complicates the classification of assets. The primary scope of the CFTC’s regulatory authority lies in overseeing futures and swaps related to commodities, whereas the SEC exclusively focuses on the regulation of securities.
Nevertheless, in the scenario where an asset has been deemed a commodity according to the CFTC’s perspective and falls within the definition of security by the SEC, it becomes conceivable for both regulatory entities to exercise jurisdiction over it.
During the podcast discussion, Collin Lloyd, a partner at the renowned multinational law firm Sullivan & Cromwell, criticizes the SEC’s view, which specified that all cryptocurrencies, excluding Bitcoin, should be classified as “securities” under federal securities law. Sullivan & Cromwell has been actively involved in crypto-related legal matters, especially the FTX bankruptcy case.
Coinbase employed the legal firm to assist in navigating the complex regulatory landscape and addressing the challenges arising from the wells’ notice it received from the SEC. The crypto community continues to criticize the US regulator over its handling of the crypto sector.
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