United States Commodities and Futures Trading Commission (CFTC) Chairman Heath Tarbert has determined that Ether (ETH) is a commodity, and therefore that it falls under the jurisdiction of the Commission. The announcement came at came during an interview at the Yahoo! Finance All Markets Summit in New York City, where Tarbert also said that he expects to see ETH-based futures trading in the near future. Tarbert began his tenure as CFTC Chair in July.
Tarbert agrees with the US Securities and Exchange Commission (SEC)’s view that neither Bitcoin (BTC) nor Ether are securities: “we’ve been very clear on bitcoin: bitcoin is a commodity. We haven’t said anything about ether—until now,” Tarbert said. “It is my view as chairman of the CFTC that ether is a commodity.”
The CFTC originally declared that Bitcoin and other virtual currencies were legally classified as commodities in 2015 in a filing against Coinflip, a Bitcoin ATM company.
Forked assets will most likely be legally classified the same way that the parent asset is classified
Tarbert also said that although there is still much legal ambiguity in the cryptocurrency industry, “similar digital assets should be treated similarly,” referring specifically to “forked assets,” or cryptocurrencies that are created as the result of attempted software upgrades on cryptocurrency networks (for example, Bitcoin Cash and Ethereum Classic.)
“If the original digital asset hasn’t been determined to be a security and is, therefore, a commodity, most likely the forked asset will be the same – unless the fork itself raises some securities law issues under that classic Howey Test,” Tarbert said, possibly implying that the CFTC’s classification of a cryptocurrency depends on how a coin is created.
He added that he believes that the Howey Test, which is used to determine whether or not an asset is a security, is still relevant: “it has stood the test of time,” he said. The text refers to a legal case that took place in 1946.
“Ultimately it goes to the fundamental question: is this something that is being used for capital raising, and are you investing in an enterprise, or are you buying something that has tangible store of value in and of itself?”
SEC’s Bill Hinman: newly-created tokens are most likely to be considered as securities.
Tarbert’s comments on forked coins may not necessarily be in line with the SEC’s view on the matter. Bill Hinman, the SEC’s director of corporate finance, said last year Yahoo Finance’s All Markets Summit: Crypto in San Francisco in June of last year that newly-created tokens are most likely to be considered as securities.
Hinman explained that this is because most new tokens marketed with “the promise that the assets will be cultivated in a way that will cause them to grow in value, to be sold later at a profit,” and “typically are sold to a wide audience rather than to persons who are likely to use them on the network.”
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However, the SEC has also determined that both Bitcoin and Ethereum are decentralized enough that they could not possibly be under the control of a single entity “whose efforts are a key determining factor in the enterprise.”
But Tarbert said that although coins sold in ICOs may originally be considered to be securities, they could eventually transition to commodities.
Tarbert also commented on the importance of the US’ role as a leader in financial technology: “I want to stress the importance of blockchain and digital assets to the United States, and in particular, as CFTC Chairman, I want the U.S. to lead in this technology,” he said.
Fintech holds tremendous promise for our country. I look forward to hosting innovators, regulators, and market participants from across the country and beyond for an insightful discussion. https://t.co/tJ6MrZUvkH
— Heath Tarbert (@ChairmanHeath) October 3, 2019
Will the CFTC continue to be bullish on crypto?
The US CFTC has a reputation for being rather crypto-friendly. Christopher Giancarlo, who served as the Commission’s previous chairman, was known in the industry as “Crypto Dad.”
The CFTC’s quest to better understand Ethereum specifically began In 2018, when the CFTC put out a public request for commentary on ‘“virtual currencies beyond Bitcoin, namely here ether and its use on the Ethereum Network.”
In March of this year, CFTC commissioner Brian Quintenz delivered a speech in which he may have implied that ETH-based derivatives were on the horizon, saying that the Commission was also seeking comments on “potential new virtual currency-based futures and derivatives products.” He also expressed concern that the Ethereum network’s move from a Proof-of-Work algorithm to a Proof-of-Stake algorithm could leave the network vulnerable to market manipulation.