Bitcoin, Ethereum and Litecoin Are Commodities Says CFTC – Trustnodes

The Commodities Futures Trading Commission (CFTC) has declared ethereum and litecoin to be commodities, in addition to bitcoin.

In an action against Binance, one of the world’s biggest crypto exchange, CFTC said “digital assets that are commodities include bitcoin (BTC), ether (ETH), and litecoin (LTC).”

This is the first time that the commission has explicitly stated litecoin is a commodity, with it referred to as such numerous times in the complaint.

Litecoin is one of the first fork of bitcoin launched in 2011. It is pretty much a copy paste of bitcoin, except that its block times are every 2.5 minutes rather than 10 minutes.

Ethereum, out of the three, has been subject to most speculation regarding whether it could be a security, especially by its detractors.

The chair of the Securities and Exchanges Commission (SEC), Gary Gensler, has stated or implied that all cryptos, except for bitcoin, are a security.

CFTC however is making it clear that three such cryptos are not securities but commodities, that being bitcoin, eth and litecoin.

As their action against Binance is primarily due to it offering ‘commodities’ futures without registering with CFTC, CFTC has to establish that there are in fact any commodities traded at Binance, hence why they are specifying the classification of the three cryptos.

Some however argue that all three are in fact currencies or money, and that’s the position of another US department, the FinCen.

They require registration with FinCen as a money transmitter, a currency, even if you are just selling a few bitcoin, eth or litecoin on something like Localbitcoins.

While IRS classifies them as property, whatever that means, and in regards to asset reporting for publicly traded companies, cryptos are intangible assets with indefinite life in the balance sheet.

These inconsistencies have led to criticism of law by enforcement, but in the case of ethereum in particular, that it is being re-iterated as a commodity confirms that a crypto can potentially start off as a security, in this case through an ICO, and eventually become a commodity.

The CFTC does not have oversight over spot trading of crypto commodities, so an exchange offering just the buying and selling of eth, bitcoin or litecoin would not need to register with them, though they have to comply with FinCen.

If however they offer futures, options, swaps or other derivatives to US citizens, they have to register with CFTC.

In the case of Binance CFTC said 16% of the accounts on the exchange belong to US citizens, while Binance maintains they take all necessary measures to prevent access to the exchange by Americans.

CFTC also states Binance itself does not have an executive office, claiming that is in order to not be under the applicable regulations of any jurisdiction.

It is slightly more complex however because Binance started off as an ICO, and technically it is meant to be owned by the BNB token holders across the globe.

It was meant to be run by them as well, through a DAO or some other similar mechanism, all of which is very different from a traditional company.

Some six years since that ICO however, Binance in its current form is fairly traditional with a top down organization, a CEO, employees, and with the DAO part kind of non existent except as a semi-legal design of Binance’s initiation.

Easy therefore it is for a regulator to say this is the law, but the public first of all has to decide whether there is any innovation in Binance’s corporate design, if we can call it that, and whether it is the law that is outdated and needs to be modified or whether regardless of its present or aspiring structure Binance still has to comply.

As the biggest and a fairly centralized attempt to sort of implement this new thinking that we call DAO, Binance has been a confusing entity certainly to regulators, but also to some of the public like Bloomberg which claims Zhao owns all of Binance, when there was an ICO that makes it not quite the case, if obviously Changpeng Zhao abides by the terms of that ICO.

Regulators therefore, and the public, needs to start considering just what is a DAO and how does it fit within the current regulatory system as well as whether some updates need to be made to it to accommodate experimentation and potential innovation.

Because Zhao is not doing all this just for fun. He could incorporate somewhere, in the Bahamas like FTX or some other lax jurisdiction and get it over with. He doesn’t because he is part of a community that since at least 2016 has been wondering whether the company as a legal form – invented some 500 years ago – can be updated or innovated in the digital era.

As Binance is a fairly centralized entity, those complex and nuanced arguments are more difficult to make, and you’d think the reaction from regulators is something like ‘pfff, what.’

But, hopefully the crypto space at least understands just what is happening in regards to this ‘no HQ’ experiment that is a first as far as we are aware.

And it is potentially a prelude of what’s to come once we get to the actual DAOs, which are being built, refined and experimented at the corners of crypto.

As they require significant input, their debut has not arrived yet in part because it is a very hybrid company model in as far as you do need the centralized aspect of a management personnel, and how the dao-nians hire and fire them are complex matters.

But, it’s an exciting experiment and Binance, perhaps in a very little way, is trying to push it forward. Which is why the exchange has generally attracted support in this space.