The crypto classification debate rages as the CFTC reaffirms that Ether is a commodity
(Kitco News) - Amid the ongoing saga of FTX and its disgraced CEO Sam Bankman-Fried, the Commodity Futures Trading Commission (CFTC) may have just given crypto proponents the upper hand in their battle with the Securities and Exchange Commission over the classification of Ether (ETH) as a commodity.
On Tuesday, the CFTC filed a lawsuit against Sam Bankman-Fried, FTX and Alameda Research, claiming violations of the Commodity Exchange Act and demanding a jury trial. The complaint alleged that SBF personally directed FTC executives to set up features allowing Alameda to use the crypto exchange as a line of credit for its lenders.
Contained within the Dec. 13 court filing from the CFTC is a statement that reads, “Certain digital assets are “commodities,” including bitcoin (BTC), ether (ETH), tether (USDT) and others, as defined under Section 1a(9) of the Act, 7 U.S.C. § 1a(9).”
This statement from the CFTC is in direct contrast to comments made by Commissioner Rostin Behnam on Nov. 30, when he said that the only cryptocurrency that should be classified as a commodity is Bitcoin during a speech at a private crypto event at Princeton University.
Securities and Exchange Commission chair Gary Gensler has likewise made comments in recent months alluding to the fact that Ether is a security, causing further confusion as to its legal status. During an interview on Jim Cramer’s Mad Money show on Jun. 27, Gensler notably confirmed that Bitcoin was a commodity, but added, “That’s the only one I’m going to say.”
The debate on the status of Ethereum goes all the way back to its initial coin offering. Many in the industry agree that when it first launched, Ethereum met the qualifications of security. Still over time, as the network became more decentralized, it transformed into a commodity.
Ethereum’s transition to proof-of-stake further complicated matters, with Gensler suggesting that staked tokens may be considered securities under the Howey test.
The matter of which government regulator will be tasked with overseeing the crypto industry is one of great interest to crypto holders, with many feeling that the SEC would be more heavy-handed with the industry than the CFTC.
The way each is treated for tax purposes is also an influencing factor, as commodities have a slightly more preferential tax treatment than securities, as 60% of the gains on commodities are treated as long-term capital gains and 40% are treated as short-term capital gains, regardless of how long the contract was held.
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In August, the leaders of the U.S. Senate's Agriculture Committee sought to remedy this issue by introducing the Digital Commodities Consumer Protection Act of 2022 (DCCPA), which would classify Bitcoin and Ether as digital commodities and require all crypto firms involved in the trading of these commodities to register with the CFTC. The bill is still working its way through the Senate and is unlikely to pass in the near future.
Meanwhile, on the opposite side of the equation, Senator Elizabeth Warren is reportedly working on a bill that would give the SEC most of the regulatory authority over the crypto space. Warren’s office is looking at a range of crypto-related issues, including regulations, taxation, climate, and national security.