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You are at:Home » Crypto Industry Winning SEC-Waged War As Ethereum Becomes Commodity
Opinion

Crypto Industry Winning SEC-Waged War As Ethereum Becomes Commodity

Ethereum has officially been classified as a commodity, not a security, marking a significant regulatory milestone. This classification aligns Ethereum with Bitcoin and paves the way for smoother operations for dapp builders by reducing bureaucratic hurdles.
Kadan StadelmannBy Kadan StadelmannJuly 24, 2024Updated:July 30, 2024No Comments4 Mins Read
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Crypto Industry Winning SEC-Waged War As Ethereum Becomes Commodity
Crypto Industry Winning SEC-Waged War As Ethereum Becomes Commodity
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Now that Ethereum is classified as a commodity as opposed to a security, Ethereum dapp builders can breathe a sigh of relief now that their tokenized networks or blockchains can go from centralized to decentralized and won’t have a war waged against it nor be bogged down in red tape. Ethereum is officially a protocol, not a company, in the eyes of the regulators.

Bitcoin has enjoyed commodity status since 2014 when the IRS first categorized it as such. Questions, however, have long swirled around Ethereum, as shown by the painstakingly long process to get spot Ethereum ETFs listed on major exchanges.

There are many reasons for many-a-crypto founder to breathe a sigh of relief in the wake of approvals. For instance, the SEC greenlit the application based on rules for commodity-based trust shares. Not a single sponsor applied under the Investment Company Act of 1940, required for ETFs that trade securities to regulate conflicts of interest in investment companies and securities exchanges by requiring disclosure of material details about each investment company. The SEC cited only court precedents regarding commodities.

SEC Chairman Gary Gensler has clearly stated his view time and time again that the vast majority of digital assets are securities. Not everyone agrees. Former SEC Chairman Jay Clayton, for instance, believes that Ethereum has become so decentralized that it can now be considered a commodity just like Bitcoin.

The Approval Order approving the listing and trading of Ethereum ETFs seems to imply Ethereum itself is a commodity. The Order will be important for the crypto industry in courts moving forward. It is reasonable to assume raw Ethereum is a commodity, and the SEC could find it hard to convince courts that it becomes a security, such as when staked ETH is involved.

There has been much pressure put on the SEC from all around–both other regulators and industry–to categorize Ethereum as a commodity. In a bit of an ongoing inter-agency squabble, Rostin Behnam, head of US commodities regulator Commodities Future and Exchange Commission (CFTC), believes that his agency should have regulatory oversight of Bitcoin and Ethereum.

Behnam recently told the US Senate Committee on Agriculture, Nutrition, and Forestry that a recent ruling in Illinois reiterated both Bitcoin and Ethereum as commodities.

Furthermore, Consensys remains committed to continue with its lawsuit against the SEC, viewing the decision to approve the ETF as evidence that Ethereum is a commodity.

On today’s SEC ruling:

While Consensys welcomes today’s decision to approve ETH Spot ETFs as a step in the right direction, this seemingly last minute approval is yet another example of the SEC’s troublesome ad hoc approach to digital assets. No other industry, market, or…

— Consensys (@Consensys) May 23, 2024

“Today’s approval signals that the SEC views that ETH is a commodity and not a security – contrary to the position it continued to take prior to the events of this week, as described in our recent lawsuit against the SEC,” the company posted on X. “We will continue to fight for definitive regulatory clarity in our case.”

Consensys also accused the SEC of taking a “troublesome ad hoc approach to digital assets.”

On today’s SEC ruling:

While Consensys welcomes today’s decision to approve ETH Spot ETFs as a step in the right direction, this seemingly last minute approval is yet another example of the SEC’s troublesome ad hoc approach to digital assets. No other industry, market, or…

— Consensys (@Consensys) May 23, 2024

Discovery in that trial, in which Consensys seeks a ruling that Ethereum is a commodity, revealed that the SEC conducted a secret investigation into whether or not ETH is a security. Other large institutions agree.

“Any claim that Ethereum’s move to proof-of-stake has turned it into a security, or that staking itself is a securities transaction, is misguided and harmful to innovation,” said VanEck, a spot Ether ETF applicant. “We applaud this decision, as we believe the evidence clearly shows that ETH is a decentralized commodity, not a security.”

To be sure, the SEC did not approve staking ETH through the ETH ETFs. Sponsors will likely submit a proposed rule change and wait for SEC approval.

Staking entails locking ETH in a smart contract and becoming a validator, who stake 32 ETH and are randomly selected by the network to verify transactions and add new blocks to the blockchain. Of course, staking remains open for the SEC to reconsider, and they soon will as a sponsor is likely to propose a rule change to allow staking.

Not only did Ethereum’s similarities to commodities help it to receive the ETF nod, but so too did the platform’s market maturity. For example, the Commission noted the Chicago Mercantile Exchange (CME) ETH futures listing means the CME surveillance of spot ETH markets could help detect any market manipulation that could affect the integrity of ETH ETFs.

Ethereum ETF approval hints that digital assets can start as a security and end up as a commodity. Digital assets generally take centralized to decentralized flight paths. Bitcoin was once heavily centralized around Satoshi Nakamoto, for instance.

Read Also: Ethereum (ETH) Price Prediction 2024 2025 2026

Ethereum Ethereum ETF
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Kadan Stadelmann
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Kadan Stadelmann is a blockchain developer and operations security expert, currently serving as the Chief Technology Officer for the Komodo Platform. His diverse experience spans across various sectors, including operations security within government, launching technology startups, and delving into application development and cryptography. Stadelmann embarked on his blockchain technology journey in 2011 and became a part of the Komodo team in 2016.

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