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Bitcoin and Ethereum Declared Commodities by CFTC Chairman: What’s Next?

Crypto enthusiasts on Twitter were buzzing with excitement after Rostin Behman, chairman of the Commodity Futures Trading Commission (CFTC), announced in congressional testimony that a recent federal court ruling had confirmed the status of Bitcoin and Ethereum as commodities.

While the Securities and Exchange Commission’s (SEC) Chairman, Gary Gensler, has stated that Bitcoin falls outside his regulatory jurisdiction, uncertainties persist around Ethereum, despite the sudden approval of spot Ethereum ETFs in May.

Behman emphasized that the court ruling reaffirmed Bitcoin and Ether as commodities under the Commodity Exchange Act (CEA) in a fraud case against an unregistered entity in the U.S. District Court for the Northern District of Illinois.

Judge Mary M. Rowland’s decision in the case dismissed the argument that the CFTC lacks authority over cryptocurrencies, asserting that Bitcoin and Ethereum are indeed within the CFTC’s regulatory purview based on existing cases and the CEA.

However, the ruling does not definitively settle Ethereum’s status, as it is not binding beyond the Northern District of Illinois. Anthony Tu-Sekine from Seward & Kissel noted that decisions at the trial court level do not hold sway over other courts in the same jurisdiction.

CFTC officials had previously classified Ethereum as a commodity in 2019, but the SEC has never labeled it a security. A dropped investigation into “Ethereum 2.0” raised some concerns, highlighting the complexity at the intersection of crypto and securities laws.

Conflicting rulings within the same jurisdiction, like Judge Analisa Torres’ decision in the SEC’s case against Ripple, demonstrate the challenges in applying securities laws to cryptocurrencies traded on secondary markets.

Judge Jed Rakoff’s ruling in the SEC’s case against Terraform Labs underscored the nuanced application of the Howey Test, a framework used to determine if an asset is a security, emphasizing consistency in legal interpretations.

Despite the legal intricacies, the SEC’s approval of spot Ethereum ETFs in May hinted at Ethereum’s commodity status. Asset managers vying for a spot Ethereum ETF must comply with specific regulatory forms for investment vehicles dealing with securities.

Behman’s remarks were met with enthusiasm on Crypto Twitter, with users celebrating the development as a significant step forward for the crypto space.

The evolving legal landscape surrounding cryptocurrencies reflects the ongoing efforts to define their regulatory status and ensure compliance within existing frameworks.