Security or Commodity? – Congress to vote on clarity for Crypto

Following a Financial Services Committee hearing on Tuesday, a digital asset bill will be voted on in July which will give clarity to the crypto industry.

A hearing took place on Tuesday in which two bills were discussed pertaining to obtaining clarity for the digital asset ecosystem and for stablecoins.

Representatives from the crypto industry were present and testified at the hearing. These included: Jeremy Allaire, CEO of Circle, Dr Emin Gün Sirer, CEO of Ava Labs, Aaron Kaplan, Co-CEO of Prometheum, Inc., and Coy Garrison, former counsel to SEC Commissioner Hester Peirce.

Digital Asset Market Structure

The memorandum for the hearing posited that the determination of whether a digital asset fell under the definition of a security or a commodity was a “difficult” question in the US. 

The oft quoted Howey test needs to see all four of its characteristics met in order for any particular digital asset to be constituted as an investment contract, and consequently classified as a security. It is argued that one or more of these characteristics may not apply to certain digital assets.

It was put forward how both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) tended to act through enforcement rather than dialogue.

“Generally, the SEC and CFTC have attempted to resolve the legal question of whether a digital asset is a security or a commodity through enforcement actions.”

It was further added that these agencies do not always agree on which digital assets fall under either of their purviews. The example was given whereby Chairman Gensler of the SEC has said that he considers all digital assets to be securities with the only exception of Bitcoin.

On the other hand, the CFTC recently brought an enforcement action against Binance, asserting that Bitcoin, BUSD, Litecoin, and Ethereum were commodities. These inconsistencies were stated to be a good reason for the “urgency of congressional action”.

Stablecoins

It was laid down that there are four classifications for stablecoins. These include: fiat-collateralised stablecoins, crypto-collateralised stablecoins, commodity-collateralised stablecoins, and non-collateralised stablecoins.

It was also stated that there are currently more than 200 different types of stablecoins with a collective value of more than $130 billion. Tether has the biggest market capitalisation with $82.5 billion, followed by USDC with $30.1 billion.

Adding complexity to the situation, each state has its own regulatory framework for stablecoins, and various stablecoins could fall under the jurisdiction of different regulators.

Vote on bill for clarity

According to Patrick McHenry, US House Financial Services Committee Chairman, a digital asset bill will be voted on as soon as lawmakers return from their recess in early July.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.