Heath Tarbert, Chairman of the Commodity Futures Trading Commission (CFTC), says Ethereum’s native token Ether (ETH) is a commodity and may not be classified as a financial security.
While attending the Yahoo Finance All Markets Summit in New York on October 10, Tarbert stated,
“We’ve been very clear on Bitcoin: Bitcoin is a commodity. We haven’t said anything about ether – until now. It is my view as Chairman of the CFTC that Ether is a commodity.”
In December 2018, the CFTC publicly requested feedback to “better inform the Commission’s understanding” of the Ethereum blockchain and its native cryptocurrency Ether.
Tarbert agrees with the US Securities and Exchange Commission’s (SEC) view that Bitcoin and Ether may not be classified as securities. He reveals that the CFTC and SEC are working cooperatively on this matter.
The CFTC first revealed its views regarding Bitcoin and other crypto assets in 2015, when it brought charges against crypto firm Coinflip. However, this is the first time the commodities regulator has provided guidance on Ether.
Tarbert points out that there’s “ambiguity in the market” regarding the status of many cryptocurrencies, but notes that “similar digital assets should be treated similarly.”
Tarbert also mentions that “forked” assets like Bitcoin Cash (BCH), Bitcoin Gold (BTG) and Ethereum Classic (ETC) should be regulated like the original crypto asset. CFTC’s categorization of each cryptocurrency depends on how each particular asset was developed.
“It stands to reason that similar assets should be treated similarly. If the underlying asset, the original digital asset, hasn’t been determined to be a security and is therefore a commodity, most likely the forked asset will be the same.”
“[The only exception might be if] the fork itself raises some securities law issues under that classic Howey Test.”
The “Howey Test” references a 1946 case in which shares in a citrus grove were being sold. The SEC currently uses it as its north star to determine whether a cryptocurrency has the characteristics of a financial security.
SEC director of corporate finance Bill Hinman noted last year that newly minted tokens are most likely securities because they’re sold with “the promise that the assets will be cultivated in a way that will cause them to grow in value, to be sold later at a profit,” and “typically are sold to a wide audience rather than to persons who are likely to use them on the network.”
Hinman says Bitcoin and Ether don’t meet this criteria due to their decentralized nature. In other words, BTC and ETH are not controlled by third parties “whose efforts are a key determining factor in the enterprise.”
In response to a question about whether the Howey Test is still relevant today, Tarbert says,
“I think the analysis is pretty sound. It has stood the test of time. Ultimately it goes to the fundamental question: is this something that is being used for capital raising, and are you investing in an enterprise, or are you buying something that has tangible store of value in and of itself?”
Tarbert also says it’s possible for a new digital currency to initially be classified as a security, and then turn into a commodity.
“You can have a situation where something in an initial coin offering is a security initially, but over time, it gets more decentralized, and there’s a tangible value there. So you can have things that change back and forth.”
Tarbert, who took over the role of CFTC head in July 2019, also notes that Ether-based futures contracts might begin trading on US markets in the near future.