In an interview with CNBC, Securities and Exchange Commission Chairman Gary Gensler said that Bitcoin was the only cryptocurrency he was prepared to label a commodity rather than a security.
“Many of these tokens… The investing public is hoping for a return just like when they invest in other financial assets we call securities. Many of these financial assets, crypto financial assets have the key attributes of a security,” Gensler said in an interview on Squawk Box, noting that these assets are therefore under the SEC’s jurisdiction. “Some like Bitcoin, and that’s the only one I’m gonna say… My predecessors and others have said, they’re a commodity,” Gensler added. This classification would put oversight of the Bitcoin market under the jurisdiction of the Commodity Futures Trading Commission.
Securities vs. Commodities
The debate over whether cryptocurrencies are securities or commodities has huge implications for how regulations will work. Securities can only legally be sold to the public following registration with the SEC, which has onerous disclosure requirements. Securities are also subject to rules of price transparency and face greater reporting demands. A commodity, meanwhile, would see more relaxed regulations.
Crypto investors and enthusiasts have generally preferred to think about crypto as a commodity. Because cryptocurrencies are thought of as stores of value, many experts think it’s closer to a commodity than a security, noting similarities it has to gold. Like gold, crypto has drawn speculators who bet on big price swings.
There’s also the Howey test to consider. It is a three-question test to determine whether a financial instrument is considered an investment contract, named after the 1946 US SCOTUS case SEC v. W.J. Howey Co. Those questions are:
- Is there an investment of money with the expectation of future profits?
- Is there an investment of money in a common enterprise?
- Do any profits come from the efforts of a promoter or third party?
Cryptocurrency is decentralized, therefore it fails the second question of the test, as they do not represent a “common enterprise.”
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How to Get Exposure to Bitcoin
The path toward further cryptocurrency legitimacy will require solving this debate. Crypto has been battered in recent weeks, but Bitcoin saw signs of recovery last week, suggesting that the crypto winter might have hit its nadir. Investors can get exposure to the space through the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC).
For more news, information, and strategy, visit the Crypto Channel.
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