Some interesting chit chat is going on in the USA at the moment as the Commodity Futures Trading Commission (CFTC) on March 27th once again referred to Ethereum as a commodity. The backdrop to this is the CFTC lawsuit against Binance for violations of the Commodities Exchange Act and CFTC regulations.
The classification of Ethereum, Bitcoin and other cryptocurrencies as a security or commodity is an important one as it impacts on which body regulates crypto.
To start, it’s important to understand what a commodity and a security are.
- A commodity is a raw material or primary agricultural product that can be bought and sold, such as gold or oil. This is long-term good for crypto, potentially.
- A security, on the other hand, is a financial instrument that represents ownership in a company or a promise of repayment with interest. Examples of securities include stocks and bonds. This is long-term bad for crypto, potentially.
Now, when it comes to Ethereum and Bitcoin, there are arguments on both sides of the debate. Some people argue that they are commodities because they are used as a medium of exchange and have a finite supply. Like gold or oil, their value is determined by supply and demand in the marketplace.
However, others argue that they are securities because they were initially sold through initial coin offerings (ICOs) and their value is tied to the performance of the underlying blockchain technology. This is where things get a bit murky because the definition of a security is somewhat broad and can include any investment contract that involves the expectation of profit from the efforts of others.
This is not a story that is going away anytime soon. Watch this space.
Important note: The comments reported here do not constitute financial advice and are opinions only. Always seek independent financial advice before investing, and never trade or invest with money you cannot afford to lose.
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