Is it a Commodity or a Security?

The Commodity Futures Trading Commission (CFTC) has created an infographic outlining how the agency regulates digital assets. The CFTC seeks to clarify “the fallacy of the question ‘Is it a commodity or a security’.”

Posted by CFTC Commissioner Dawn D. Stump, the Commissioner says the recent growth of crypto products and other digital assets has raised the question of how this new financial asset class is regulated in the United States.

Commissioner Stump states:

“The CFTC does not regulate commodities (regardless of whether or not they are securities); rather, it regulates derivatives—and this is true for digital assets just as for any other asset class.  Before considering whether to redesign the regulatory structure in the crypto context, let’s get the facts straight about our current system.”

In brief, Commissioner Stump says the CFTC does not regulate securities as that is the job of the Securities and Exchange Commission while adding that if a digital asset is a security “further analysis is required to determine where Regulatory Authority lies for derivatives product on that digital asset.”

The infographic explains:

“ask not whether the digital asset is a commodity or a security, ask whether a futures contract or other derivatives product is involved.”

Recently, SEC Chairman Gary Gensler sent a letter addressed to Senator Elizabeth Warren, a member of the Senate Banking Committee, requesting greater authority in regards to regulating digital assets. Gensler stated:

“Moreover, there are initiatives by a number of platforms to offer crypto tokens or other products that are priced off of the value of securities and operate like derivatives. It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime.”

The statement by Gensler and by Stump appear to indicate a need for legislative action to clarify, statutorily, as to which agency has oversight over digital assets which frequently have diverse characteristics.

CFTC Digital Assets Authority Infographic Comm Stump 082321