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Lawmakers Dismiss SEC v CFTC Oversight Overlap War as ‘Industry-Fueled Narrative’

US lawmakers have, in their Wednesday May 10, joint hearing, observed the existence of regulatory gaps in crypto oversight. The lawmakers in their Capitol Hill session question the ambiguity of the token’s classification that shifts from security to commodity. 

The lawmakers acknowledged that a regulatory gap confuses whether the token is a commodity or a security. 

Unresolved Regulatory Gap Plunges the Crypto Industry into Endless Puzzle

The legislators present regretted that the absence of defined criteria to ascertain the exact nature of the token illustrated wide regulatory gaps. The lawmakers heard that the unresolved gaps plunge the crypto industry into an endless puzzle. In particular, the mystery concerns ascertaining the extent of authority that either the Securities and Exchange Commission (SEC) or Commodity Futures Trading Commission (CFTC) could exercise over the digital assets industry.

The joint hearing saw the Democratic and Republican lawmakers differ on whether to engineer a new regulation to address the digital assets’ classification. Representative Dusty Johnson lamented that the nonexistent regulatory clarity hinders innovation delivery to the marketplace.

Johnson hypothesized that often the town kicks the can into the sloppy path. He added that occasionally there arises a need when Congress recognizes the essence of initiating appropriate action. 

Revisiting Howey Test Deployed by SEC

Representative Johnson delved into the Howey Test applied by SEC in a four. Johnson honed in specifically the Howey Test, the SEC’s four-sided assessment, to ascertain if the crypto asset meets security considerations.  

The primary element within the Howey Test is assessing if the asset harbours reasonable expectations to derive profits through other parties’ efforts. It concerns determining if other parties’ efforts, including token developers, have a sizable influence on the asset’s price movement.

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Congress to Provide Triggers to Resolve Commodity Versus Security Dispute


Johnson admits that Congress can enable the regulators to deliver the clarity sought. In particular, it could assist the agencies in how decentralization functions. He adds that Congress can provide SEC and CFTC with triggers capable of delineating when the crypto asset shifts from security to a commodity. His stance aligns with the pronouncement by former corporate finance director at SEC William Hinman, admitting its possibility. 

The hearing saw Matthew Kulkin from WilmerHale law firm admitting the difficulty in determining the inflexion point for the occurrence. The legal partner at the firm indicated the problem of drawing the two ends when the token was offered in raising capital and when commoditized. 

Gensler Non-committal on Labelling Ethereum as Security

The legislators reviewed the case for Ethereum, where CFTC and SEC where both agencies issued duelling opinions. The opinions consider the second-ranked token by market capitalization as a commodity and security. 

Recently, SEC chairperson Gary Gensler dodged whether Ethereum should be labelled security. His refusal to respond to Representative Patrick McHenry’s question revealed a deliberate departure from labelling Ethereum as security. The question arose from earlier pronouncement that altcoins, except for Bitcoin, are under securities laws.

Avoid the Industry-Fuelled SEC Versus CFTC War on Crypto Assets’ Treatment

Massachusetts Representative Stephen Lynch, who serves as the ranking member in the Digital Assets subcommittee, dismissed the essence of classifying tokens. The Democratic politician confessed that jurisdictional questions often surface about whether the crypto tokens deserve commodity or security treatment. Such inquiry drags SEC and CFTC into a turf war he considers risky since it amounts to feeding legislators with the industry-fueled narratives of an existing overlap. 

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Lynch holds that the issues the crypto assets advocates raise regarding regulatory ambiguity constitute masked non-compliance with the provisions enshrined in the existing laws. He warned that introducing a new regulatory structure would undermine the existing regulation

Lynch urged fellow legislators to avoid being plunged into the debate concerning whether the tokens constitute commodities or securities. Instead, he petitioned the colleagues to excuse themselves from ongoing debates to prioritize focus on scrutinizing the intermediaries facilitating the tokens. 

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Stephen Causby

Stephen Causby is an experienced crypto journalist who writes for Tokenhell. He is passionate for coverage in crypto news, blockchain, DeFi, and NFT.

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