As is often the case with cryptocurrency, we’ve got some good news and some bad news for you. The good news is that the Chairman of the Commodity Futures Trading Commission (CFTC), J. Christopher Giancarlo, stated that he thinks “cryptocurrencies are here to stay.” Nope, they’re not going anywhere, especially in countries facing economic distress related to their national currency. “There’s 140 countries in the world, every one of them has a currency. Probably 2/3 are not worth the polymer or the paper they’re written on, and those parts of the world rely on hard currencies. Bitcoin cryptocurrency may solve some of the problems.”
The bad news is the cryptocurrency is now being classified as a commodity, which falls under the CFTC’s jurisdiction. In a ruling announced on Wednesday, September 26th, Senior Judge Rya W. Zobel of the U.S. District Court for the District of Massachusetts, entered an order holding that the Commodity Futures Trading Commission (CFTC) has the power to prosecute fraud involving virtual currency.
As the Court states, the term “commodity” “includes a host of specifically enumerated agricultural products as well as ‘all other goods and articles…and all services rights and interests…in which contracts for future delivery are presently or in the future dealt in.” The Court agreed with the CFTC that “Congress’ approach to defining ‘commodity’ signals an intent that courts focus on categories—not specific items.” “[T]his broad approach also accords with Congress’s goal of ‘strengthening the federal regulation of the … commodity futures trading industry.’”
Ok, we get it. Crypto can be regulated as a commodity. And since commodities are subject to capital gains taxes, cryptocurrency taxation will remain the same. So no help there.
But what about cryptocurrencies being treated as securities by the SEC? Can crypto be both a commodity and a security? Whether cryptocurrency is treated as a security would determine: (a) which investors can buy and hold cryptocurrencies, (b) who can deal in and keep custody of cryptocurrencies, and (c) what disclosure and registration requirements cryptocurrency issuers must meet.
Unfortunately, although the CFTC can regulate cryptocurrency as a commodity, it could also be treated as a security by the SEC. So we’re chalking this up to the “bad news for crypto” category — the SEC is not out of the picture and now the CFTC has authority to bring lawsuits around crypto as well.
The 1946 Supreme Court ruling in SEC v. Howey defined a security as a contract involving (1) an investment of money (2) in a common enterprise (3) with the expectation of profits (4) from the efforts of others.
When will clear rules emerge dictating how cryptocurrency will be treated? Don’t hold your breath. Experts such as Diego Zuluaga, a policy analyst at Cato’s Center for Monetary and Financial Alternatives, have been advocating for clarity. “Regulators can achieve their objectives by designating existing cryptocurrencies, such as bitcoin and ether, as commodities and by clearly describing the circumstances under which contracts for future cryptocurrencies will meet the Howey test.” Cryptocurrencies meeting the elements of the Howey test would be classified as securities.
Whether regulators will adopt a balanced approach as Cato suggests remains to be seen. Hopefully, concerns for the public interest which address fraudulent practices will not unduly chill innovation in the space.
This article was written to the best of our knowledge with the information available to us. We do not guarantee that every bit of information is completely accurate or up-to-date. Please use this information as a complement to your own research. Nothing we write in any of our articles is intended as investment advice nor as an endorsement to buy/sell/hold anything. Cryptocurrency investments are inherently risky so you should never invest more than you can afford to lose.