CFTC sues Binance over nature of ETH, which it considers a commodity

The CFTC, the commission that regulates the US futures market, has filed a lawsuit against Binance that questions the nature of the virtual currencies that underpin the exchange's business. The lawsuit alleges that Binance has used Ether as a commodity, a “Commodity ” in its financial products, the experts explain, and this subjects Ether to the regulations of the CFTC which regulates futures contracts on goods and commodities.

Silver lining

The CFTC suit against Binance states that ETH is a commodity

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— sassal.eth (@sassal0x) March 27, 2023

The US Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance on March 27 for violating the Commodities Exchange Act and CFTC regulations. Those breaches included transactions with Ether (ETH), according to the lawsuit. This complaint, on the face of it, has touched a significant point of contention between the CFTC and the Securities and Exchange Commission (SEC).

The CFTC argued in its lawsuit that Binance transacted “ digital assets that are commodities, including Bitcoin, Ether, and Litecoin for people in the United States .” This is not a new position for the agency. The CFTC argued that ETH was a commodity in its lawsuit against FTX in December, and Chairman Rostin Behnam stated his view that ETH and stablecoins were commodities on March 8 in a Senate hearing.

The CFTC's stance on ETH was fairly unchallenged prior to the Ethereum upgrade; after Ethereum moved to a proof-of-stake consensus mechanism, SEC Chairman Gary Gensler commented on which coins to stake that “from a coin standpoint […] this is another hint that, according to Howey's test, the investing public is anticipating profits based on the efforts of others.

Gensler's comment provoked a slow wave of reactions. In February, for example, Ethereum co-founder and cryptocurrency entrepreneur Joseph Lubin told Cointelegraph, “ Betting is no security” and it would be a “ terrible path for the US ” to make it so. He added that he thinks US courts would agree with him and that “ there would be a huge outcry not only from the cryptocurrency community, but also from several politicians and some regulators ” if ETH was classified as a title.

However, the CFTC vs. Binance case is based not on the nature of ETH but on the nature of Binance's products, limiting its applicability to the broader argument.

“ In this particular case, ETH is being treated as a 'commodity' rather than a 'security' ,” Timothy Cradle, director of regulatory affairs at Blockchain Intelligence Group, told Cointelegraph. " Complaint references securities in relation to swaps ." Cradle added:

“ The economics of an offering that includes ETH could still change the definition applied to the token. For example, ETH staking could still be interpreted as an investment contract, and as such a security .”
Some transactions, such as blended swaps involving ETH, may be subject to both SEC and CFTC regulation, but that “ would not necessarily define ETH itself as a security, as blended swaps also include commodities and currencies ” .

This more complex approach to regulation would not necessarily imply cooperation between the two agencies. Yankun Guo, a partner at law firm Ice Miller, commented on the situation in a statement to Cointelegraph:

“ It demonstrates that both the multifaceted nature of how tokens work and how they are used can cause them to fall under the jurisdiction of multiple agencies; […] I would not be surprised to see a similar lawsuit from the SEC naming all of the same tokens, except BTC, as securities” .

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The article The CFTC sues Binance over the nature of ETH, which it considers a commodity comes from Scenari Economici .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-cftc-fa-causa-a-binance-sulla-natura-di-eth-che-considera-una-merce/ on Tue, 28 Mar 2023 10:00:28 +0000.