Former CFTC Commissioner: Ethereum Can Be Classified As A Commodity And Security Effect

Commissioner of the United States Commodities Futures Trading Commission (CFTC). (photo: twitter @ChairmanHeath)

JAKARTA - Ethereum, an Ether (ETH) native currency, may be classified as a commodity and security effect simultaneously. This was claimed by the former commissioner of the United States Commodities Futures Trading Commission (CFTC).

In an episode of the Unchained podcast hosted by Laura Shin on May 23, Dan Berkovitz, who is also a former general adviser at the Securities and Exchange Commission (SEC), states that legally ETH can be under the jurisdiction of the two regulatory institutions.

The chaos over Ether's legal status is mainly caused by conflicting statements from the CFTC and SEC. Over the past six months, the CFTC has repeatedly cited Ether, along with a number of other cryptocurrencies, as commodities.

Meanwhile, the SEC led by Gary Gensler has not explicitly provided a prescribed legal category for Ether. Gensler said in a surveillance hearing last April that all, except Bitcoin, should be considered a security effect and declined to provide further explanation.

While claims that Ether can simultaneously become a commodity and security effects may sound contradictory, Berkovitz said that due to the overlapping definition of laws between commodities and security effects, it allows an asset to be classified as both.

"The law is clear. Something can be a commodity and a security effect at once," Berkovitz said, as quoted by Cointelegraph.

Berkovitz explained that confusion arises because commodities are not just physical goods such as "gandums" or "dogandums of oat," and that everything that is included in the scope of "contracts of futures" can technically be defined as commodities. This explains why the term "expansion" is part of the name CFTC itself.

On the other hand, Berkovitz said that the security effects, defined by the Securities Act and Exchange Act, and include things like records and investment contracts, could also be the subject of future contracts, which then place them under the jurisdiction of the CFTC as well.

The CFTC is primarily responsible for regulating futures contracts and swaps on commodities, while the SEC exclusively regulates security effects. However, if something is considered a commodity by the CFTC and also as a security effect according to the SEC definition, then the two regulatory agencies can have the upper jurisdiction.

In the podcast, Collin Lloyd, a partner at multinational law firm Sullivan & Cromwell, criticized the SEC's claim that anything but Bitcoin should be granted a "security effect" status based on federal securities law.

"I don't see any in the jurisprudence telling me that a series of digits operating on the blockchain can naturally be a security effect," Lloyd said.

"Ini adalah pertanyaan aneh untuk ditanyakan, 'Apakah aset digital ini merupakan efek keamanan atau tidak?' Saya pikir yang harus ditanya adalah, 'Apakah aset digital ini dijual sebagai bagian dari transaksi efek keamanan?' Itu tergantung pada fakta dan keadaan," tambahnya.

Interestingly, Sullivan & Cromwell is currently working on the FTX bankruptcy case and was hired by Coinbase on April 29 to assist the crypto exchange in a fight against unclear regulations with the SEC.