Yesterday, the President of the CFTC, Rostin Behnam, stated that he believes that most crypto should not be considered as security tokens. 

He also stated that Bitcoin and Ethereum should be considered commodities because there is a court ruling that declares it, but this does not yet apply to the majority of altcoins. 

CFTC and SEC: the war on crypto considered security tokens

The CFTC is the Commodity Futures Trading Commission, which is the U.S. government agency that oversees the commodity and defi futures markets. 

It was them back in 2017 who authorized the stock market debut of the first futures on Bitcoin, on which ETFs approved by the SEC were later issued. 

The SEC invece è la Securities and Exchange Commission, un’agenzia governativa che si occupa delle security e degli exchange. 

Between the two agencies, there has long been a sort of struggle to be assigned control of the crypto market, and this dispute has not yet been completely resolved. 

However, considering Bitcoin and Ethereum as commodities, it is the CFTC that should handle it. 

The SEC, however, does not agree, so much so that after approving the ETFs on Bitcoin futures, it rejected those on BTC spot. It was only after an explicit intervention by a court that declared that rejection illegitimate that the SEC backtracked and finally, in January, also approved those on Bitcoin spot. 

As for Ethereum, however, in May the SEC approved them, probably precisely because there is now a court ruling that declares Ethereum a commodity. 

The security 

It should be noted, however, that the reasoning about the nature of commodity or security of cryptocurrencies cannot be generalized, but should be developed individually for each individual cryptocurrency. 

This means that it cannot be stated that all cryptos similar to Bitcoin and Ethereum are to be considered commodities just because those two are. Each case needs to be analyzed individually. 

For example, regarding XRP (the cryptocurrency of Ripple), it was ruled by a court that its trades on secondary markets (the exchanges) cannot be considered investment contracts, so in fact, in that case, it is to be considered a commodity. 

But there is still an ongoing lawsuit by the SEC against Ripple accused of initially issuing XRP on the primary market as a security token. 

In the financial field, a security is a title issued by an issuer who is required to register with the SEC in order to issue it in accordance with the law. 

The key point is that it is essentially a financial contract in which the issuer promises gains to the subscriber, but only in relation to activities carried out by the issuer itself, and not by the purchaser. 

So if someone sells investment contracts to investors who buy them with the sole purpose of making a profit thanks to the work of the seller, they are issuing a security, and they are required to be registered with the competent authority. If they are not registered, the security is considered unregistered, and therefore its sale is considered illegal. 

The security token: which crypto fall into this category?

This reasoning applies not only to traditional financial products, but to any type of financial asset, including cryptocurrencies. 

Therefore, if someone creates a cryptocurrency, or a token, which is sold in exchange for the promise of generating a profit for those who buy it, that cryptocurrency should be considered a security token. 

The security token, being security in all respects, must be registered with the SEC in order to be lawfully sold on the U.S. financial markets. 

Practically no cryptocurrency is registered with the SEC, except for very rare exceptions. 

Exceptions are instead made for those cryptocurrencies that are not securities because they do not promise any profit. 

BTC for example have never been sold by those who created or mined them as investment contracts, but only as assets whose market value is volatile. In other words, those who buy them do not receive a promise of profit. 

The same thing applies to ETH, even if in this case there is staking that promises gains. In theory, however, staking exists thanks to the activities carried out by those who own the tokens and deposit them on their own node. The discussion changes only for the so-called staking-as-a-service that many crypto exchanges, for example, do, which could fall under investment contracts. 

The words of Rostin Behnam

While on one hand the SEC for a long time has tried in vain to prove that Ethereum should be considered an unregistered security, the CFTC on the other hand has always maintained that both Bitcoin and Ethereum should be considered commodities. 

From this point of view, yesterday’s words of President Behnam are not surprising: he merely reiterated that there is now even a court ruling that confirms it. 

Instead, the CTFC had never really pronounced itself on altcoins. 

The SEC continues to consider almost all altcoins as securities, while the CFTC argues that most cryptos should not be considered as such. 

Yesterday, during a hearing at the Senate Appropriations Committee, Behnam explicitly stated that he believes 70%-80% of all cryptocurrencies are non-security. 

Check out my testimony today at the Senate Committee on Appropriations. https://t.co/KfLMZtk0Pc pic.twitter.com/u4jiQ8mcHI

— Rostin Behnam (@CFTCbehnam) June 13, 2024

Moreover, he said it explicitly, whereas SEC Chairman Gary Gensler has often made unclear statements about it. 

This on one hand intensifies the confrontation between SEC and CFTC, and the struggle to gain oversight of the crypto market, and on the other hand suggests that there is a 20% or 30% of tokens that should almost certainly be considered unregistered securities.