Dan Berkovitz, a former counsel at the Securities and Exchange Commission, discussed several significant regulatory implications of Ethereum in the most recent episode of Laura Shin’s Unchained podcast.
According to Berkovitz, one cryptocurrency may exhibit traits of both a security and a commodity.
ETH Classification Up to CFTC or SEC?
Ethereum’s security debate centers on the confusion caused by the Commodity Futures Trading Commission (CFTC). The agency has classified virtual currencies like Bitcoin and Ethereum as commodities. Contrarily, the Securities and Exchange Commission (SEC) has not taken a clear position on Ethereum. It has said Bitcoin is the only cryptocurrency that might be classified as a commodity.
Berkovitz explained that people often think of commodities colloquially as tangible goods. But, he touched upon the Commodity Exchange Act to clarify that. A commodity is reportedly defined as something that can be the subject of a futures contract. He said, “The two statements that ether is a commodity and it may or may not be a security or any virtual currency is a security fact that something may be a commodity and something security are not contradictory.”
The ex-official concurred that the CFTC could enforce anti-fraud and anti-manipulation regulations for commodities. According to Berkovitz, the SEC has regulatory control over securities. Adding that if anything is considered a security, the SEC will have regulatory authority over it.
In the past, Gensler also spoke on Ethereum’s status following its conversion to proof-of-stake. He pointed out that some cryptocurrencies allow investors to “stake” their coins. This feature may satisfy a key criterion used by courts to determine whether an asset is a security, in what it refers to as the Howey Test.
With its transition, Ethereum addressed its energy use issue but opened a new Pandora’s Box in regard to its classification as a security or commodity.
Ethereum Remains Crucial for Legislation
Questions concerning Ethereum’s status have also arisen due to the continuing legal fight between Ripple Labs and the SEC. John Deaton, a cryptocurrency attorney representing XRP holders, has frequently argued that if XRP is a security, Ethereum must be too.
Deaton recently questioned where Ethereum (ETH) and its competitors were registered. Suggesting that they were subject to different legal scrutiny from the SEC than XRP.
In the meantime, BeInCrypto recently reported on internal SEC communications that appeared to show the agency was aware that XRP did not entirely fit the criteria of security.
When Castle Island Ventures’ Nic Carter claimed that Ripple had lobbied for Ethereum to be dubbed security last year, David Schwartz, the chief technology officer of Ripple and the creator of the XRP Ledger, had said at that time that branding Ethereum security may be “disastrous” for the company. This continues the debate about Ethereum and XRP being securities in the eyes of the agency.
Despite ongoing debates, the U.S. continues to be a murky area in categorizing and regulating crypto asset frameworks. And Ethereum suffers an identity crisis.
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