It is not contradictory for Ethereum to function as both a security and a commodity, former CFTC commissioner and current SEC Counsel, Dan Berkovitz claimed.
According to Berkovitz, who participated in a podcast hosted by acclaimed journalist Laura Shin, there are specific legal provisions that allow Ethereum to fall under the purview of both the SEC and the CFTC.
The confusion arises from the fact that a commodity only relates to the physical components, like cotton, eggs, and so forth, to a layman. Berkovitz said.
However, anything that is covered by a “futures contract” as stated in the Commodity Exchange Act is likewise considered a commodity. The word “futures” being a part of the CFTC’s name makes sense in light of this.
Regarding the division of jurisdiction, the CFTC is in charge of commodities futures and swaps, and the SEC controls matters pertaining to securities.
Notes, proof of debt, and investment contracts fall under the category of security. While the aforementioned plainly falls under the authority of the SEC, they can also be the subject of a futures contract, which places them under the purview of the CFTC as well.
Furthermore, according to Berkovitz, it is feasible for an asset to be categorized as both a commodity and a security due to the overlap in the legal meanings of the two terms.
Another guest on the podcast, Collin Lloyd, a partner at the law firm Sullivan & Cromwell, challenged SEC chair Gensler’s claims that everything other than Bitcoin should be given “security” status under federal securities 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. 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.
The classification of Ethereum, the second-ranked crypto in the world, has caused more confusion in the US since regulators cannot agree on whether it is a security or a commodity.
Ethereum Classification Debate
At a congressional oversight session held in April, Congressman Patrick McHenry pressed the Securities and Exchange Commission chair about whether Ether is security.
Gensler avoided going into further detail when he declared that everything covered by Bitcoin is secure.
The Commodity Futures Trading Commission, likewise responsible for overseeing the US derivatives markets, also took steps that further demonstrated the lack of agreement in the sector of digital assets.
On 27 March, CFTC filed suit against Binance for engaging in “Willful Evasion” of laws by selling unregistered crypto derivative products.
The regulator’s definition of Ethereum as a commodity in the filing contrasted with the SEC’s classification of them as securities.