Ethereum’s native Ether (ETH $1,824) token may be both a commodity and a security, the former commissioner of the United States Commodities Futures Trading Commission has claimed.
Speaking on a May 23 episode of Laura Shin’s Unchained podcast, Dan Berkovitz, who is also the former general counsel at the Securities and Exchange Commission, said that it’s legally possible for ETH to fall under the jurisdiction of both regulatory agencies.
The ongoing confusion over Ether’s legal status stems in large part from conflicting statements from the CFTC and the SEC. Over the course of the last six months, the CFTC has repeatedly called Ether, along with a number of other cryptocurrencies, a commodity.
Meanwhile, the Gary Gensler-led SEC hasn’t explicitly provided Ether with a designated legal category. Gensler said at an oversight hearing in April that everything but Bitcoin (BTC $26,756) should be deemed a security and has refused to further elaborate.
While the claim that Ether could be simultaneously a security and commodity may strike many as a contradiction, Berkovitz said that due to the overlapping legal definitions of commodities and securities it’s possible for an asset to be classified as both.
The law is clear. Something can actually be both a commodity and a security.
Berkovitz explained the confusion arises because commodities aren’t purely physical items like “wheat” or “oats” and that anything that falls under the purview of a “futures contract” can technically be defined as a commodity. This explains why the term “futures” is a part of the name of the CFTC itself.
Alternatively, Berkovtiz said that a security, which is defined by the Securities Act and the Exchange Act — and includes things like notes and investment contracts — can also be the subject of a futures contract, which then places it under the purview of the CFTC as well.
The CFTC’s main regulatory purview captures the regulation of futures and swaps on commodities, while the SEC solely regulates securities. However, if something is a commodity in the eyes of the CFTC as well as a security under the SEC’s definition, it’s entirely possible for both regulatory bodies to have jurisdiction over it.
On the podcast, Collin Lloyd, a partner at multinational law firm Sullivan & Cromwell, took aim at the SEC’s claim that everything excluding Bitcoin should be designated a “security” status under federal ecurities law.
“I don’t see anything in the case law that tells me that some string of digits that operates on a blockchain can natively just be a security,” said Lloyd.
It’s kind of a weird question to be asking, ‘Is this digital asset a security or not?’ I think you should be asking, ‘Is this digital asset being sold as part of a securities transaction?’ That depends on the facts and circumstances.
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