Cryptocurrencies: Commodity or Security
The majority of cryptocurrencies are now categorized as commodities and are governed by the Commodity Futures Trading Commission (CFTC). Many cryptocurrencies, such as Solana (SOL), Cardano (ADA), and Polygon (MATIC), are deemed unregistered securities by the SEC. Commodities and securities differ in the following ways:
Physical items such as oil, gold, silver, wheat, and corn are referred to as commodities. On commodities exchanges, they are frequently traded as futures contracts. Investment goods such as stocks, bonds, and mutual funds are referred to as securities. They can be purchased and sold by investors stock brokers who are SEC-registered broker-dealers. Strict guidelines govern what information a security product must report and how it can be purchased and sold. Consequently, the SEC has filed numerous accusations against leading cryptocurrency exchanges for dealing in what is known as "crypto asset securities."
Why Does the SEC Think Of Ethereum As A Security
To decide whether a product qualifies as a security, the SEC employs a procedure called the Howey test. It states, "An 'investment contract' exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others." Bitcoin (BTC) is not regarded as a security by the SEC. Because Bitcoin is decentralized, it does not satisfy the Howey test's common enterprise requirement. Additionally, its founder is unidentified and unaffiliated with the charity that supports it.
Vitalik Buterin, the face of Ethereum, on the other hand, is everything but anonymous. Aside from this, the Ethereum Foundation actively supports and encourages blockchain activities. One of the four Howey boxes may be checked if the SEC's investigations determine that this is a common operation.
Additionally, according to the SEC, proof-of-stake (PoS) cryptocurrency offers a realistic chance of making money. Through staking, users can tie up their currencies and receive incentives for making contributions to the network. In 2022, Ethereum made the incredible technological transition to PoS. However, the fact that investors can now anticipate making money when they stake their Ethereum could tick off another Howey test box.
