The SEC and CFTC are at loggerheads over crypto jurisdictional rights
- SEC Chairman Gary Gensler insists that all Proof-of-Stake tokens and digital assets should be treated as securities.
- Ethereum should fall under the “commodity” category, CFTC challenges.
- Since Ether futures have traded on the CFTC exchange, they must fall under their jurisdiction.
Whether a cryptocurrency is a “security” or a “commodity” is under debate among various regulatory bodies. The US Securities and Exchange Commission (SEC) believes that all Proof-of-Stake tokens and digital assets should be treated as securities. The Commodity Futures Trading Commission (CFTC), on the other hand, believes that Ethereum, which is already traded as a futures contract on its exchange, should be classified as a “commodity”.
CFTC: Ethereum should fall under commodity category
There has been a lot of regulatory confusion surrounding Ethereum since the network transitioned from Proof-of-Work (PoW) to Proof-of-Stake (PoS). The transition took place in September 2022 during the Merge event. In particular, Proof-of-Stake defines the process used to run blockchains, allowing coin holders to earn financial rewards when they allow some of their tokens to be used for transaction ordering.
The confrontation comes after the apparent conflicts between SEC Chairman Gary Gensler’s views and the views of CFTC Chairman Rostin Behnam. In a recent statement, Behnam said he believed Ether was a commodity. In addition, the derivatives market regulator said that because Ether futures have traded on the CFTC exchange, they must fall under their jurisdiction.
SEC: PoS tokens like Ethereum should be regulated as securities
According to Gensler, PoS tokens, which account for most major cryptos, should be regulated as securities. Based on his argument, developers of protocols that support such tokens often promote their projects on social media, with investors flocking to them hoping to make money. In an open meeting with the SEC on March 15, the executive said:
I would suggest that each of these token operators, obviously consulting with the appropriate talent, try to come into compliance.
Cryptocurrency companies want to avoid the “security” tag as it poses investor protection requirements, which many say are incompatible with the asset class. Nevertheless, they come under increasing regulatory scrutiny.
This is not the first time the SEC chief has expressed concern over PoS tokens. He did the same during the 2022 Ethereum “Merge.” At the time, Gensler was careful to say he wasn’t talking about any digital coin in particular.
A month ago, the SEC fined Kraken $30 million after the giant US-based crypto exchange offered betting products that allow users to earn passive income. Later, in a lawsuit against digital asset exchange KuCoin filed last week, New York Attorney General Letitia James labeled Ether as a security. Notably, this was one of the isolated cases that explicitly put the Ether (ETH) token in the legal status.
Still, Gensler declined to comment on anything in particular, adding that he “loves” the CFTC.
