Is your favorite crypto a security or commodity? CFTC Commissioner reveals what the watchdog looks at

  • With Ripple in the hot seat for securities violations, cryptocurrency investors are worried about whether their favorite cryptos are securities or commodities.
  • CFTC Commissioner Dawn Stump recently laid out the 10 points to consider while evaluating whether a digital asset is a commodity and if the CFTC has jurisdiction.

Is your favorite cryptocurrency a security or a commodity, and if it’s the latter, will the commodities regulator be looking at it soon? This has become a pertinent question for investors even as Ripple continues to square off with the securities regulator in the U.S over whether XRP is a security. A commissioner at the Commodity Futures Trading Commission (CFTC)  took a dive into the ten things to consider before deciding on whether your favorite token is a commodity and if the regulator will be taking a keen look.

Dawn Stump, one of the five commissioners of the CFTC took a look at ten pointers for any investor who is uncertain of whether they own a security or a commodity, or possibly even both.

“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 pointed out.

She believes there has been an inaccurate oversimplification which suggests that they are either securities under the SEC or commodities under the CFTC.

Is your crypto a commodity? CFTC exec explains

This is a complicated multi-faceted question with no direct answer. However, as the Commissioner pointed out, the definition of a commodity under the CFTC’s governing statute is extremely broad. “Therefore, to say that a particular digital asset is a “commodity” is unremarkable,” she stated.

Stump, who is a former director at the Futures Industry Association, reminded the public that the CFTC doesn’t have regulatory authority over cash commodities. “Rather, the CFTC regulates futures contracts on commodities, and other derivatives products such as swaps.”

An example with the livestock market is that cattle are commodities and the CFTC would regulate the futures market on cattle. However, it doesn’t regulate cash cattle markets such as video auctions and sale barns.

Conclusively, even if your favorite digital currency is a commodity, it’s not regulated by the CFTC. However, the commission will regulate derivatives on that cryptocurrency. This role extends even to tokens that are determined to be securities. The CFTC would still regulate derivatives on tokens that are considered securities.

As such, the regulator would have jurisdiction over BitMEX, a platform that offers derivatives on cryptocurrencies, but not over a platform that offers purely purchasing and selling services like Robinhood Crypto.

As we’ve seen in the past, the CFTC has enforcement authority over the products it regulates. It has already proven this in the cryptocurrency market with its action against BitMEX. Earlier this month, the regulator revealed that it had reached a settlement with BitMEX for the exchange’s illegal sale of derivative products to U.S clients. BitMEX consented to a $100 million penalty, one of the largest settlements in the industry.

The commissioner also critically pointed out that the watchdog has authority to use its broader enforcement authority “to deter manipulation and fraud involving cash digital assets, even though the CFTC does not regulate them.”

Related: Former CFTC officials argue whether crypto regulation falls under CFTC jurisdiction or the SEC

About Author

Steve has been a blockchain writer for four years, and a crypto enthusiast for even longer. He is most excited by the application of blockchain to solve the challenges facing developing nations.

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