In a recent announcement Dan Berkovitz, the former Commodities Futures Trading Commission Commissioner (CFTC), stated that Ether (ETH) could be grouped as a security and commodity. Commissioner Berkovitz stated that two regulatory agencies could regulate ETH.
In an interview with Laura Shin titled “Unchained Podcast,” Berkovitz confirmed the possibility of Ether being regulated by the CFTC and the Securities Exchange Commission (SEC). Initially, the SEC and CFTC officials had engaged in heated discussions on classifying the second largest crypto asset Ether.
CFTC and SEC Classification of Crypto Assets
In the last six months, it was reported that the CFTC official considered Ether a commodity. Elsewhere the chairperson of SEC, Gary Gensler, grouped ETH under a specific legal category. He stated that other crypto assets except Bitcoin should be considered as security.
Gensler’s statement created mixed thoughts on the classification of most crypto assets. Upon further inquiry on the grouping of cryptos, Gensler failed to provide additional information.
According to Berkovitz, the classification of Ether as both a security and commodity could confuse the public. He noted that even though there is a close relationship between the legal definition of commodities and securities.
Citing the legal definition of commodities and securities, Berkovitz confirmed the possibility of grouping digital assets into both categories. He added that grouping a product as either a commodity or security was legally acceptable.
Difference Between Securities and Commodities
A commodity refers to an intangible product that falls under the futures contract. Berkovitz noted that commodities differ from “wheat” and “oats,” which have physical features. From the definition of CFTC, Berkovitz noted that the assets with “futures” elements are regulated by the agency mentioned above.
On the contrary, security refers to physical items such as notes and investment documents. Berkovitz explained under certain conditions, securities can be classified under the futures contract, which CFTC regulates. He emphasized that the term securities were derived from the SEC.
Under the existing regulatory framework, futures and swaps are considered commodities that CFTC regulates. Correspondingly, other digital assets classified as securities are supervised by the SEC.
Berkovitz observed that some of the crypto assets that the CFTC classified as commodities were considered by the SEC as securities. In such a scenario Berkovitz proposed that such a commodity can be regulated under two agencies.
Community Remarks on Classification of Ether
Speaking at the podcast, a partner at Sullivan & Cromwell legal entity Collin Lloyd opposed Gensler’s statement that all crypto assets are classified as securities except Bitcoin. After examining the characteristics of most cryptos, such as the digits attached to their respective blockchain network, Lloyd observed that some of the digital assets failed to qualify as securities.
In his address, Llyod was more concerned about whether digital assets should be traded as securities or commodities. He added that facts and conditions determine the grouping of the crypto.