- L Misthos and M Bacina
CFTC calls crypto 'commodities' in case challenging CZ / Binance
In early April, the US Commodities and Futures Trading Commission (CFTC) filed a lawsuit against Binance, the largest crypto trading platform by volume. The CTFC allegation contains a number of very serious allegations which may cause very significant issues for Binance, but the case also raises an interesting point regarding several cryptocurrencies, including Ether, Litecoin and stablecoins listed on Binance, which the CFTC allege in their pleadings are properly classified as commodities.
For any case brought by a regulator, first jurisdiction must be shown for the regulator to enforce rules. In this matter the CFTC has alleged that the cryptocurrencies in question are properly seen as commodities under US law. In a House Appropriations Committee budget hearing on 28 March 2023 CTFC Chairman Rostin Behnam stated his opinion on Ether:
I believe they are a commodity...And because they are listed on CFTC exchanges, we do have a regulatory relationship - obviously with the derivatives market and that product, but the underlying market as well.
The CFTC's position on cryptocurrency puts it in opposition to the US Securities and Exchange Commission (SEC). The SEC chair, Mr Gary Gensler has zealously pursued the SEC's jurisdiction over all crypto assets through an aggressive regulation by enforcement stance while being roundly criticised by industry and at least one court for failing to provide guidance as to how crypto businesses could comply with the existing rules.
While the SEC has been criticised for failing to provide an adequate registration processes for crypto projects, the majority of which are actively pursuing regulatory compliance, the CFTC throwing their regulatory hat in the ring could lead to tensions and inconsistent rules between the two bodies, but may provide at least some measure of certainty for certain crypto-assets. Interestingly Australia has no distinct definition of 'commodity' under the Corporations Act but the recently introduced private members bill Digital Assets (Market Regulation) Bill does contain a definition of commodity (but definitionally carves out any financial products / securities from falling under the definition of tokens in that Bill).
The CFTC also appears far more united than the SEC, with SEC Chair Mr Gensler regularly refuted by SEC Commissioner Hester Peirce who advocates firmly the need to provide clear and transparent rule-making around this growing industry.