The prospect of a cryptocurrency being recognized as a security is a serious problem for developers who distribute these coins to trading platforms, as well as other intermediaries. The fact is that if a certain asset is recognised as a security, it means that its initial sale to investors should not have taken place. In such a case, coin developers in the United States are required to register, a mechanism that has not yet been determined by the SEC, Ripple CEO Brad Garlinghouse said the day before.

Regulators argue that buyers of digital assets are expecting to make profits from them, which will be determined by the success of the development team – which allegedly falls under the definition of securities. At the same time, the cryptocurrency industry believes it is foolish to follow the recommendations for defining securities from the last century, so the industry needs new regulations.

For Bitcoin, such claims are tentatively irrelevant because the developer of the first cryptocurrency is anonymous, in addition he did not conduct various stages of BTC sales in the early stage of the coin’s existence. However, similar claims about other coins are now becoming more and more common.


To be fair, a claim from regulators that some crypto-asset is allegedly a security means nothing. Still, the Securities and Exchange Commission filed a lawsuit against Ripple back in December 2020 for allegedly illegally distributing the XRP token, but the agency has had no success since then. So the prospect of coins being recognised as such does not look particularly convincing.


Which cryptocurrencies are securities

Fortunately, such a position doesn’t coincide with the views of the CFTC’s leadership, represented by Chairman Rostin Banham. During a recent Senate meeting, he noted that Etherium and Stablecoin should be considered commodities and be regulated by the CFTC and not the SEC.

Banam spoke before the US Senate Agriculture Committee. During his speech, he was questioned by Senator Kirsten Gillibrand, who noted the serious difference of opinion between the CFTC and SEC-especially after the Tether incident in 2021. And here’s what Banam responded to.

Despite the regulatory framework around stablcoins, they will be commodities, in my opinion. It was clear to our enforcement team and the Commission that Tether’s Stablecoin is a commodity.

According to Cointelegraph sources, the CFTC imposed fines of $41 million and $1.5 million respectively on Tether and Bitfinex on October 15, 2021 for violating the Commodity Exchange Act (CEA) and a previous CFTC instruction. The regulator found that Tether only had sufficient reserves in the currency for 27.6 per cent of the time between 2016 and 2018. In addition, Tether violated the law by storing part of its reserves in derivatives and by mixing operating and reserve funds.

In other words, the CFTC has a long history of dealing with both Stablecoin and Etherium. However, Banam doesn't want to give up his position to the SEC and give the regulator the ability to set the rules for regulating the crypto market entirely on its own.

As evidence of his position, Banam stated that the CFTC “would not allow” Etherium-based futures products to be listed on CFTC exchanges if it “didn’t consider them commodity assets.” He also added the following.

We have the risk of litigation, we have the risk of regulatory credibility if we do something like this without a serious legal argument that the asset in question is a commodity.

This comment seems to have solidified Bannam’s view on the classification of ETH, because until a few months ago he wasn’t so sure of his position. Last November, at an event at Princeton University, the expert stated that Bitcoin was the only cryptocurrency that could be considered a commodity. Just a month before that, he had suggested that Ether could also be seen as a commodity, Decrypt reported.

Alas, there are exceptions to this perception. In particular, the filing of a lawsuit from New York Attorney General Letitia James against cryptocurrency exchange KuCoin became known tonight. The cause of action is a possible violation of securities and commodities laws within the state, Decrypt reports.

What attracted the most attention in the lawsuit was the characterisation of ETH cryptocurrency ETH, which, along with Terra (LUNA) and TerraUSD (UST), has been described as a security. Here is the relevant replica.

This action is one of the first cases in which a regulator is claiming in court that one of the largest cryptocurrencies represented by ETH is a security. The petition also claims that ETH – as well as LUNA and UST – is a speculative asset that relies on the efforts of third-party developers to provide profits to ETH holders.

In this case, the claim against KuCoin is that it is positioning itself as a cryptocurrency exchange, while the trading platform is allegedly a securities and commodities broker-dealer because of its connection to said tokens.

Such wording sounds like a very weak argument. Still, in this case, the regulator is forced to first prove that Etherium belongs to securities, and then to make a claim for distributing “securities” to a cryptocurrency exchange. And as the SEC’s case against Ripple would suggest, the process could take years before it ends in nothing.


We believe that such action by US regulators will not be good for the digital asset industry: after all, at least right now the market is experiencing a noticeable collapse. That said, it is important to understand that even in the worst-case scenario, such cryptocurrencies will only be restricted in distribution to New Yorkers or US users in general. But to do that, again, we would have to hold court hearings and set a precedent in terms of recognizing a certain digital asset as a security. And that's out of the question for now.