Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The crypto market ends the week at a total market capitalization of $2,17 trillion. Bitcoin continues to trade at around $62,300. Ethereum experiences no changes and stagnates at around $2,400. XRP is down by 2%, Solana by 1%, and Dogecoin by 3%. Almost all altcoins are trading in the red, with very few exceptions. The DeFi sector decreased the total value of protocols (TVL) to around…
Understanding SEC’s Classification of Crypto-assets: Securities or Commodities?
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Cryptocurrency growth in the last decade has taken the technological world by storm, and with this growth came many questions and concerns. The classification of cryptocurrency is primarily a chief concern. The subject is one that courts, government agencies, and even financial markets struggle to grasp.
The primary debate begs an answer to an essential question: are they securities or commodities?
Cryptocurrency traverses local, national, regional, and international boundaries. Hence the need for classification is both a national and international concern. This contentious issue is evident in that agencies within a country cannot agree, let alone different countries reaching a consensus.
Are crypto-assets securities or commodities in the USA? Are they under the Securities and Exchange Commission (SEC) purview of the Commodity Futures Trading Commission (CFTC)?
Difference Between Securities and Commodities
One must comprehend what the two words mean to understand the categories into which crypto-assets fit. The Howey Test appears to be the most revered way to define them. It does this by asking these three questions:
- First, are there any future profits expected when the money is invested?
- Second, is the money invested in a joint enterprise?
- Third, are the profits a result of a promoter or third party?
Securities
Securities are tradable financial assets. These assets yield a profit to a joint enterprise. This profit is usually a percentage of the potential profit arising from the enterprise. The ownership of part of the enterprise’s capital structure does not change whether a profit is made.
This definition doesn’t sit right with many crypto-assets. Returns on investment largely depend on market supply and demand. Besides, most crypto-assets are decentralized and change hands rather quickly.
Commodities
On the other hand, Commodities are goods, assets, and property bought and sold on an exchange. They don’t generate a return from a joint enterprise, as with securities. Instead, investors grow or cultivate them. The value of commodities heavily relies on patterns of supply and demand.
By this definition, crypto-assets such as cryptocurrency and tokens would fall under commodities. This is because they give greater returns when demand is high and supply is low. They are also decentralized and not linked to joint enterprises, categorically classifying them as commodities.
Controversial Guidelines By the Agency
The United States SEC previously defined cryptocurrencies as securities – assets invested with the expectation of returns. SEC cited that they met the parameters of security as defined by federal security laws. The belief that anything traded through an exchange platform qualifies as a security, including cryptocurrency, contributed heavily to this classification.
Another agency redefined cryptocurrency classification that differed from the SEC’s. The new sort followed a judge’s ruling to authorize the CFTC to regulate digital currencies as commodities. As such, the currencies fell in the same category as coffee and oil.
Furthermore, the Internal Revenue Service (IRS) provided its definition of crypto-assets, declaring taxable property for federal tax.
Two more agencies also gave their guidelines; the US Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN). The OFAC announced that it characterized digital currency the same way it did fiat currency, while FinCEN brought cryptocurrency into the same blanket as money. This was unlike all others that classified them as commodities, property, or assets.
These differing definitions by different agencies within the same government demonstrate the dilemma of governments and businesses to classify cryptocurrencies legally. However, there have been steps to merge the meaning of cryptocurrencies. For example, SEC recently clarified that it does not consider Ethereum and Bitcoin as securities but rather Initial Coin Offerings (ICOs). At the very least, this statement narrows down the idea of cryptocurrencies within the United States.
SEC Regulations
SEC has various regulations and guidelines regarding cryptocurrencies and ICOs. For starters, ICOs must be followed by disclosure and investor protection processes, as required by securities laws. The law stands for all ICOs, whether they represent securities or not. In essence, replacing a centralized business ledger with a decentralized one built on a blockchain does not change the substance, only the form of transaction.
Secondly, referring to cryptocurrencies as currency-based transactions does not mean they are not securities. Cryptocurrency features include anonymity and privacy, public verification of commerce, the inability to tamper with records, lower transaction costs, and making transfers without intermediaries or the impediment of distance. These features have led to the belief that cryptocurrency is beyond the purview of the SEC. However, the Commission warns that laws will be applied depending on specific digital assets’ characteristics despite consensus on cryptocurrencies’ legality.
Given the contentious nature of cryptocurrencies, the rules will keep evolving as time goes by. Accordingly, the Commission advises businesses, lawyers, accountants, and the like to remain vigilant and informed to avoid the law’s brushes.
Conclusion
Cryptocurrency is growing unprecedentedly and will keep growing in the years to come. It has made its way into numerous platforms, such as financial markets, gaming, and technology, and its legality has raised many questions. In addition, it is a new technology being incorporated into conventional methods.
Btc
Bitcoin
$62.547
price
price
0.84959%
price change
As such, there should be adjustments to accommodate their effects. The United States is working to achieve this by categorizing cryptocurrency to fit its legal financial parameters. Definitions from the SEC, CFTC, and FinCEN like showing how diverse the technology can be. These definitions and categorizations will only keep evolving as cryptocurrency gains momentum.
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