Securities and Exchange Commision

Commodity? Security? What's the difference?


      Chairman of the Securities and Exchange Commision, Gary Gensler has made headlines on social and crypto news outlets the past week during an interview with CNBC a week ago Monday, June 27, when he said that he is ready to recognize Bitcoin as a commodity, but, at the point, it is the only cryptocurrency that he is ready to label as such, stating about other digital assets that they, "have the key attributes of a security. What does this mean? It gets slightly murky. Commodities and securities have alot of similar qualities; both are purchased and sold as investments aiming to take advantage of changes in the market prices (arbitrage).  

                - Commodity prices are more strongly correlated to macro-economic health. For instance, corn, oil, cotton...these are commodities, and, for the most part, expecting cases of arbitrage, one can expect the prices to be relatively static, and universal. The price of commodities in one country or state will be very similar to the price in the next country or state.

                -Securities are more tied to microeconomic factors. These are bonds, stocks, etc. Entire stock/bond indexes are still subject to macro, but individual security prices usually reflect the health of the entity who issued security (earnings calls, public sentiment, debt/financial stability of an entity.)

                -Commodities can be owned by anyone; access is public. Securities are issued from a company or government, and so are exclusive. 

     Given this information, we can start to see how Gensler is arriving at this notion that BTC is the only commodity. Bitcoin is the only cryptocurrency that is truly public. When set up against other commodities, we see that Bitcoin actually has a lot of similar characteristics. Bitcoin is not owned by an entity, Bitcoin is farmed by anyone who has the right equipment, sold on public markets at a reasonable price spread, and is simply a store of value.

    Most, if not all other digital assets, are not truly unowned; the coins or tokens come issued from some entity. This is where it gets murky- Many coins could technically be a commodity. Without considering the option to buy low and sell high on ETH, ETH is needed as gas/energy network payment to for users and programmers to run the ecosystem. ETH is a commodity in that it is a medium of exchange and the fuel behind a network. However, we must remember that ETH was issued from a private organization with interests and agendas, and, at this point, I think it's safe to say that more investors buy ETH to hold like it's a security than to use as a commodity. More time and understanding is needed for proper SEC regulation.

Perhaps the SEC should consider putting certain digital assets into both categories- if an investor holds a cryptocurrency in an exchange, then cashes out without ever touching the asset in question, it's obviously a security. However, for a validator on a POS network to buy the native currency in bulk when it's low to maintain their validator position at a lower cost, it's obviously a commodity, especially on an opensource network. That's like an electrical company buying copper when the price is right.

    To be fair, the waters get murky with gold as well. Gold is definitely not a security. It has similar characteristics to a commodity, yet, has qualities of it's own, making it a "commodity money." This means that it is a commodity, however, it can be used as a medium of exchange or trade (more so than would corn or lumber, as it is universal, although it doesn't quite qualify as currency, but then, again, some people hold it on exchanges and cash out). One of the main desirable characteristics of gold is that it is not controlled or owned by any one entity. Also happens to be one of the main allurements to Bitcoin. Maybe taking a look at "commodity money" as a category for BTC is the direction that we're headed. Read more about commodity money here.

 

   Thanks for reading, and don't forget to follow me on Twitter @Cryptopotestas.

 

 

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