Crypto Assets: Securities or Commodities? Commissioner Explains How They Are Regulated in US

A commissioner with the U.S. Commodity Futures Trading Commission (CFTC) has detailed how crypto assets are regulated in the U.S. and whether they fall under the jurisdiction of the CFTC or the Securities and Exchange Commission (SEC). “There has often been a grossly inaccurate oversimplification” of how crypto assets are regulated in the United States, said the commissioner.

How Crypto Assets Are Regulated in the US

CFTC Commissioner Dawn D. Stump clarified last week how crypto assets are regulated in the U.S. by the CFTC or the SEC.

“The recent growth in popularity of crypto products and other digital assets has drawn much attention to the question of how this new financial asset class is regulated in the United States,” she began, adding:

There has often been a grossly inaccurate oversimplification offered which suggests these are either securities regulated by the Securities and Exchange Commission, or commodities regulated by the Commodity Futures Trading Commission.

“The CFTC does not regulate commodities (regardless of whether or not they are securities); rather, it regulates derivatives — and this is true for digital assets just as for any other asset class,” Commissioner Stump emphasized.

“The CFTC does not have regulatory authority over cash commodities,” she explained, clarifying the derivatives watchdog “regulates futures contracts on commodities, and other derivatives products such as swaps.” This includes “futures contracts on bitcoin and ether listed for trading on various CFTC-regulated exchanges.”

The commissioner noted that digital assets that are securities fall under the jurisdiction of the SEC, but “futures contracts and other derivatives on securities may be regulated by the CFTC or the SEC, or jointly by both.”

To determine who has the jurisdiction in a specific case, Commissioner Stump said that “An analysis of Congress’ statutory framework,” the CFTC rules, the SEC rules, and “the specific characteristics of the product” is required, elaborating:

Therefore, if a digital asset is a security, further analysis is required to determine where regulatory authority lies for a derivatives product on that digital asset.

As for whether a particular crypto asset is a security, SEC Chairman Gary Gensler said that the rules are clear. “Certain rules related to crypto assets are well-settled. The test to determine whether a crypto asset is a security is clear,” he said early this month.

However, some people, such as Ripple CEO Brad Garlinghouse, disagree. He is being sued by the SEC over the sale of XRP.

Commissioner Stump further noted that the CFTC has “enforcement authority” that “includes a broader application for anti-manipulation and anti-fraud authority.” This authority extends to even cash commodities which the CFTC does not regulate in order “to protect the integrity of the derivatives markets” overall. An example of this enforcement authority is the action the CFTC took against Bitmex.

The commissioner concluded:

For a number of years, the CFTC has aggressively used its broader enforcement authority to deter manipulation and fraud involving cash digital assets, even though the CFTC does not regulate them.