Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC), claims that Bitcoin is a commodity. 

He emphasized that financial regulators, the CFTC, and the SEC would collaborate to oversee the cryptocurrency market.

In an interview with Jim Cramer for CNBC’s Squawk Box, Gensler maintained his belief that many cryptocurrencies are securities and continue to be a “volatile asset class.”

He claimed that “many of these crypto-financial assets bear the features of securities,” implying that they fall under the SEC’s purview. When people invest in financial assets, termed “securities,” they are hopeful of a return. 

Commodity Or Security?

Gensler did not discuss his views on Ethereum in the interview, hinting by omission that Ether was actually a security. 

If this is true, The Commodity and Futures Trading Commission (CFTC), which oversees the trading of Ether futures under the premise that Ether is a commodity, would disagree with him on this point.

“Some of them, including Bitcoin, are commodities.”

Rostin Behnam, the head of the CFTC, has repeatedly asserted that he is “confident” that Ether and Bitcoin are commodities.

Why is the differentiation important?

Cryptocurrencies have fluctuated in their classification, alternating between being considered a security or a commodity. A recent bipartisan bill for cryptocurrency regulation established the criteria that might lead to a cryptocurrency being classified as a security or a commodity, which could provide some clarity. 

• The Responsible Financial Innovation Act is a new bipartisan bill created by US Senators Cynthia Lummis (R-WY), a member of the Senate Banking Committee, and Kirsten Gillibrand (D-NY), who serves on the Senate Agriculture Committee. The latter’s goal is to give the CFTC regulatory control over digital asset spot markets that are not considered securities.

• Additionally, the bill adds new terminology and concepts to describe digital assets.
• It introduces the concept of the “ancillary asset,” a token given to a buyer under an investment contract but not fundamentally secure.

Behnam claimed he was “quite optimistic” that the proposed legislation in Congress would give his agency more control over digital asset markets while speaking at CoinDesk’s Consensus 2022.

At a cryptocurrency event hosted by the Washington Post earlier this month, he continued, 

“Differentiating between a commodity and a security is one of the harder tasks they’ll have to do, and I believes they will do it fairly well.”

However, Gensler and Benham, though, are not waiting for the bill to be passed in order to put forward their own views. 

The “One Rule Book” strategy

Gensler discussed the possibilities of hundreds of tokens on the market with the Financial Times on Friday and revealed that the SEC and CFTC are working on a “memorandum of understanding” that would oblige the SEC to provide the CFTC with information regarding crypto-assets that represent a commodity. 

Gensler advocated for a “one rule book” strategy along with the SEC’s digital asset co-regulator.

Additionally, he said that commodities and securities are “inextricably linked in the current trading environment.”

In an interview with the Financial Times, he stated that he is stressing about one rule book on the exchange that safeguards all trading regardless of the pair – a security token vs. security token, security token vs. commodity token, or commodity token vs. commodities token.

So, according to the research, a rule book like this would protect investors from front running, manipulation, and fraud. 

This afternoon, Gensler remarked, “The crypto market is volatile, but so is the traditional securities market.”

He concluded with the thought, “If this segment is going to go anywhere in the future, it will need to build up more substantial confidence in these markets.”