Bitcoin is the only currency the SEC leader will call a commodity

On Monday morning, Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), told CNBC’s Squawk Box that the only symbol he would lump in with commodities was bitcoin.

Why it’s important: Gensler sharp refused to name any cryptocurrency other than the original, remarkable because the market has operated under the assumption that there is a kind of blink-and-nod understanding that ether is not a security either.

Driver news: “Many of these financial assets, cryptocurrencies, have the key attributes of a security … some like bitcoin, and that’s the only one, Jim, I should say, because I’m not going to talk about any of these symbols, my predecessors and others have said that they are a commodity, “said Gensler.

Meanwhile, Other symbolic societies besides ether have also been cautiously optimistic that their own assets may qualify for treatment as a commodity.

• For example, Hiro, the company behind the issuance of the STX token, warned the SEC in early 2021 that it would no longer treat the cryptocurrency as a security.
• Commodities can be traded by anyone. Securities can only be traded by accredited investors (basically rich people) unless they are in public markets (such as stocks), which is a costly pain.

The SEC did not respond to a request for comment and clarification from Axios.

Zoom out: Ethereum was launched with a fundraiser in 2014 that most people now see as a securities offering. The question is whether it has it become an item, and whether that answer provides the regulatory roadmap for other cryptocurrencies.

• In 2018, William Hinman, then director of the SEC’s Department of Corporate Finance, gave a speech in which he expressed his opinion that the coin of the world’s second most valuable blockchain, Ethereum’s ether, was no longer a security. Hinman said:
• “Based on my understanding of the current state of Ether, the Ethereum network and its decentralized structure, the current offering and sale of Ether are not securities transactions.”
• Elsewhere in the speech, Hinman explained: “If the network as [a] “token or coin to function is sufficiently decentralized – where buyers would no longer reasonably expect a person or group to make significant managerial or entrepreneurial efforts – the assets may not represent an investment contract.”

What they say: “Chairman Gensler’s refusal to acknowledge that many digital assets other than bitcoin are commodities is confusing,” Jake Chervinsky, policy leader at the Blockchain Association, told Axios via a spokesman. “In our view, the law is clear that ether – and many other digital assets such as that – are not securities under SEC jurisdiction.”

The other side: Preston Byrne, in the law firm Preston Byrne, sees it differently. “Ethereum, no doubt, began its life by being regulated as a security. No one can point to an event that changes that. TBD if Gensler does anything about it,” he told Axios via text message.

Plots: That speech has proven to be a crucial issue in the SEC’s 2020 case against Ripple, the originator of the XRP cryptocurrency, currently the seventh most valuable.

• That said, the judge in that case agreed that the speech reflected Hinman’s views and not the SEC’s. “The question of whether Hinman’s speech reflected his own opinion or that of the agency is settled … Although Hinman and the SEC admit that the agency’s staff discussed his speech, it seems that this speech was ‘only peripheral to actual policy making’.”
• The SEC does not currently have an official position on whether or not any cryptocurrency is a security. That said, as an agency with a large case load, such hints are a sign of what enforcement actions are likely not to take.

Our thought bubble: This is legal intrigue. President Biden’s executive order relied heavily on the Treasury Department and a few other agencies to sort out cryptocurrency policy and the Lummis-Gillibrand bill before the US Senate signals an intention to make blockchains largely CFTC’s mandate.

• A former SEC employee who asked not to be named told Axio’s statements read as an attempt to protect his turf, as DC appears to be looking to other agencies to rule in the crypto industry.