Yesterday, according to Fox Business reporter Eleanor Terrett, Rostin Behnam, chairman of the U.S. Commodity Futures Trading Commission (CFTC), said that the Illinois court has confirmed that BTC and ETH are digital commodities under the Commodity Exchange Act. This ruling only applies to Illinois and does not represent the position of other states or the federal government. So don't get too excited. After all, it's not a federal bill. Don't always be self-satisfied with the meaning of a "revolutionary milestone." After all, there are fifty states in the United States, each with its own government system and legal system. In addition, the United States also has a federal district, the District of Columbia (Washington, D.C.). In addition to these 50 states and a federal district, the United States also has some overseas territories, such as Puerto Rico, Guam, the U.S. Virgin Islands, the Northern Mariana Islands, and American Samoa, which also enjoy varying degrees of autonomy in some respects.
1. Which states have clearly stated that BTC and ETH are digital commodities?
The U.S. District Court has clearly classified Bitcoin (BTC) and Ethereum (ETH) as commodities in multiple cases. Here are the court’s rulings:
CFTC v. McDonnell: Judge Jack B. Weinstein of the U.S. District Court for the Eastern District of New York ruled in 2018 that Bitcoin is a commodity regulated by the Commodity Futures Trading Commission (CFTC). The case involved allegations of fraud in virtual currencies, and the judge ruled that the CFTC has the authority to regulate virtual currencies such as Bitcoin.
CFTC v. My BigCoin: Massachusetts District Court Judge Rya W. Zobel ruled in 2018 that virtual currencies are commodities under the Commodity Exchange Act. The case involved fraudulent conduct by My BigCoin, and the judge determined that virtual currencies meet the broad definition of commodities in the Commodity Exchange Act.
Uniswap class action lawsuit: When Katherine Polk Failla, a judge in the Southern District of New York, dismissed the class action lawsuit against Uniswap in 2023, she explicitly stated that Bitcoin and Ethereum are “crypto commodities”, not securities.
So far, no US state has explicitly classified Bitcoin (BTC) and Ethereum (ETH) as securities. However, the U.S. Securities and Exchange Commission (SEC) has expressed its view on multiple occasions that many cryptocurrencies should be considered securities. SEC Chairman Gary Gensler once said that in addition to Bitcoin, most other cryptocurrencies may meet the definition of securities, especially Ethereum (ETH).
The SEC's position is reflected in the following aspects:
Ripple (XRP) Case: In December 2020, the SEC filed a lawsuit against Ripple Labs, claiming that it conducted an unregistered securities offering by selling XRP. While this case focused on XRP, it reflects the SEC's regulatory attitude towards most cryptocurrencies.
SEC lawsuit against Coinbase: In its latest legal action, the SEC sued Coinbase, alleging that some of the cryptocurrencies on its platform are unregistered securities. The lawsuit involves multiple cryptocurrencies and further demonstrates the SEC's strict regulatory attitude towards crypto assets.
The SEC’s stance on cryptocurrencies is generally based on the application of the Howey test under the Securities Act. The Howey test is a standard used to determine whether a transaction constitutes a securities investment contract, under which a transaction may be considered a security if it involves the investment of money in a common enterprise with an expectation of profits that are primarily dependent on the efforts of others.
Although the SEC has a strict regulatory attitude towards cryptocurrencies, there are currently no specific state laws that clearly classify Bitcoin and Ethereum as securities. In May of this year, the House of Representatives voted to pass the 21st Century Financial Innovation and Technology Act, also known as the FIT21 Act. Although if passed, this bill will clarify the US regulatory framework for cryptocurrencies, promote the safe launch of blockchain projects in the United States, clarify the regulatory responsibilities of the SEC and CFTC, and end the feud between the SEC and CFTC and the torture of project parties, but overall, 71 Democrats and 208 Republicans voted in favor of the bill, and 3 Republicans and 133 Democrats voted against it. President Joe Biden opposed the bill in a policy statement, although he did not say he would veto it. The bill will be revised and submitted to the Senate, and Biden's approval will eventually be required, and the specific time is yet to be determined.
2. Illinois Crypto Regulatory Policy
Aiying sorted out Illinois' policies. Here are some key points:
1. Licensing requirements
Illinois is promoting a cryptocurrency licensing system similar to New York's BitLicense. This system requires cryptocurrency companies operating in Illinois to obtain specific licenses from the state government to ensure that they meet a series of strict security and compliance requirements. This includes:
Background Check: Conduct detailed background checks on the company and its executives to ensure that they are not involved in any illegal activities.
Financial requirements: The company needs to demonstrate that it has sufficient financial resources to support its business and ensure that it can meet its obligations to customers.
Compliance Program: Companies must have a comprehensive compliance program, including Anti-Money Laundering (AML) and Know Your Customer (KYC) policies
2. Tax policy
Illinois also has clear regulations on the tax treatment of cryptocurrencies. Cryptocurrencies are considered property, so capital gains taxes need to be reported when they are traded. This means:
Capital Gains Tax: When you buy or sell cryptocurrencies, you pay tax on their increased value, just like when you buy or sell stocks.
Record keeping: Individuals and businesses need to keep detailed transaction records in order to accurately report tax information
3. Consumer Protection
Illinois takes consumer protection very seriously, especially in the cryptocurrency space. To this end, the state government has taken the following measures:
Transparency requirements: Require cryptocurrency companies to provide customers with clear terms of service and fee structures to prevent fraud.
Complaints mechanism: A dedicated complaints mechanism has been established where consumers can report any illegal activities or unfair treatment to the state government.
Currently, mining companies such as Sangha Systems have established a large-scale cryptocurrency mining facility in Illinois and plan to provide energy by building solar power arrays. Bitcoin ATM: CoinFlip, headquartered in Chicago, Illinois, operates more than 2,500 Bitcoin ATMs in 47 states, and cryptocurrency exchanges such as FTX.US have set up offices in Chicago.
Reference Information:
https://x.com/EleanorTerrett/status/1811042341521703213
https://freemanlaw.com/cryptocurrency/illinois/
https://www.coindesk.com/policy/2023/02/27/illinois-officials-pushing-state-crypto-licensing-to-emulate-new-yorks-bitlicense/
https://www.cftc.gov/
