The US Senate Agriculture Committee presented a project of a law that would grant supervision of Bitcoin AND Ethereum at CFTC (Commodity Futures Trading Commission). The pill is certainly bitter for the SEC…
Security or Commodity?
“The string of state-level regulations just aren’t effective in protecting investors from fraud”has declared Senator Boozman. “Our bill will give the CFTC the task of regulating the spot market for ‘digital commodities’. »
What is a “spot” market? The COMEX (Commodity Exchange) is a spot market where commodities are traded. The New York Stock Exchange is a spot market where stocks are traded. For bitcoin, exchanges take place on different exchanges like Coinbase.
It is a surprise that the US Senate wants to entrust the supervision of exchanges to the CFTC. As its name suggests, the CFTC regulates derivatives markets such as Futures. Supervision of exchanges is normally dedicated to the SEC (Securities and Exchange commission)
The second surprise is that the bill declares from the introduction that Ethereum would be a commoditieswithout giving a clear definition.
As a reminder, the securities are stock market shares, ETF shares, debt securities, etc. The commodities refer to raw materials (gold, copper, uranium, wheat, etc.).
However, Ethereum rather seems to have all the attributes of a security. It is even obvious for Michael Saylor:
“If you want to create a commodity, you have to look at what Satoshi did. The recipe for Bitcoin was to create it without profiting from it. Satoshi did not do an ICO. […] The beauty of bitcoin is that it traded without any commercial value for a year and a half. Satoshi disappeared, leaving his BTCs untouched, leaving all of Bitcoin as a gift to humanity. »
Conversely, 60% of ETH were sold for a few tens of cents when it was launched in 2014. For Cory Klippsten, CEO of Swan Bitcoin, this ICO (Initial Coin Offering) is akin to a sale illegal of securities.
It should also be noted that the eight co-founders of Ethereum have shared 9.9% of the 50 million pre-mined ETH for free. As well as the Ethereum Foundation (9.9% too).
More crucially, the CEO of Microstrategy valued that the Ethereum network is not decentralized:
“To be able to conclude that a network is decentralized and resistant to censorship requires that its protocol has operated without modification for five to ten years. The problem with Ethereum is that even after switching to Proof of Stake, all kinds of questions will remain unanswered. How much ETH will be created in the next thousand years? What are the staking rules? The protocol keeps changing. However, a DNA structure in constant mutation generally results in a monstrosity. What I see is something that has been sold to the public through an ICO and is controlled by the Ethereum foundation. It is an investment contract. It has undergone several hard forks. And not just hard forks to fix a fatal bug. These are hard forks that have already changed the pace of ETH creation. A small group of developers controls the network. It’s a software company. Ethereum is similar to a multinational stock. They keep changing the protocol. Hard forks are mandatory, so it’s not a decentralized network and it’s not a commodity. No reasonable person who understands law or ethics can conclude that Ethereum is a commodity. SEC Chairman Gary Gensler doesn’t think it is. Ethereum passes the Howie test. This is an investment contract [security]. »
We should also remember that a competing bill is on the way and which, by the way, provides for a tax exemption for any payment in BTC of less than $200. Senator Cynthia Lummis has been leading the charge since early June and here’s what she said in early July to Decrypt in this podcast :
“I really don’t think the SEC is going to lose its regulatory control. I think she will keep it when the digital assets turn out to be investment contracts [security]. »
The SEC believes that the vast majority of altcoins are securities which fall within its jurisdiction. It has just launched a legal action against Coinbase.
It is true that previous SEC administrations have stated that Bitcoin and Ethereum should be considered commodities. Nevertheless, this seems not be the opinion of Gary Gensler, the current chairman of the SEC.
Michael Saylor, who was very prolific in interviews this week, believes that whatever happens, these regulatory clarifications are good news for bitcoin:
“All major institutions and major banks want regulatory clarity before getting involved in this asset class. Fidelity wants it, JP Morgan wants it, Goldman Sachs wants it. I don’t know how this regulatory back and forth will end [entre le sénat et la chambre des représentants]. Or what bills will be passed by Congress. Nor what type of compromise will be found. But what I do know is that everyone wants to bring regulatory clarity. And will be good for bitcoin. »
The senators intend to have it voted on before the end of the year. That is to say before the legislative elections in November, which could restore the majority to the Republicans. Senator Cynthia Lummis would then have the wind in her sails. Which could bode ill for Ethereum.
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