- The legal status of cryptocurrencies is unclear in the U.S., as federal judges are weighing whether they should be treated as securities or commodities under the law.
- The outcome of these cases could have a major impact on the crypto industry, as securities are subject to stricter regulations and oversight than commodities, which could affect the innovation and growth of the sector.
- The SEC has been cracking down on crypto companies, arguing that many of their tokens are securities that need to be registered and disclosed. The crypto companies have been fighting back, claiming that their tokens are commodities that are exempt from SEC rules.
Why it matters: Cryptocurrencies are a $2.5 trillion market that has attracted millions of investors, entrepreneurs, and enthusiasts. The legal classification of cryptocurrencies could determine the future of the industry, as well as the rights and responsibilities of the participants.
The big picture: Cryptocurrencies are digital assets that use cryptography to secure transactions and control the creation of new units. They operate on decentralized networks that are powered by blockchain technology, which records and verifies transactions without intermediaries. Cryptocurrencies can serve as a medium of exchange, a store of value, or a unit of account, depending on their design and use.
By the numbers:
- There are more than 15,000 cryptocurrencies in existence, according to CoinMarketCap, a website that tracks the market data of the industry.
- The most popular and valuable cryptocurrency is Bitcoin, which has a market capitalization of over $1 trillion and a price of over $50,000 per coin, according to CoinMarketCap.
- The most controversial and contested cryptocurrency is XRP, which is the subject of a lawsuit by the SEC, which alleges that it is an unregistered security that raised $1.3 billion in an illegal offering, according to the SEC.
What they’re saying:
- “Cryptocurrencies are not securities, they are commodities. They are not subject to the SEC’s jurisdiction, they are subject to the CFTC’s jurisdiction. The SEC is overstepping its authority and stifling innovation and competition in the crypto industry,” said Brian Brooks, CEO of Binance.US, a crypto exchange, and former acting comptroller of the currency, in an interview.
- “Cryptocurrencies are not commodities, they are securities. They are subject to the SEC’s jurisdiction, they are not subject to the CFTC’s jurisdiction. The SEC is enforcing the law and protecting investors and markets from fraud and manipulation in the crypto industry,” said Gary Gensler, chair of the SEC, and former chair of the CFTC, in a speech.
- “Cryptocurrencies are not one-size-fits-all, they are case-by-case. They may be securities or commodities, depending on their characteristics and functions. The courts are the ultimate arbiters of the law and the facts in the crypto industry,” said Hester Peirce, commissioner of the SEC, and a vocal advocate for crypto regulation, in a statement.
What’s next: The courts are expected to rule on several cases involving cryptocurrencies in the coming months, which could set precedents and clarify the legal status of the industry. The cases include the SEC’s lawsuit against Ripple, the maker of XRP; the SEC’s lawsuit against Coinbase, the largest crypto exchange in the U.S.; and the CFTC’s lawsuit against BitMEX, a crypto derivatives platform.
