Is Ethereum a security or commodity? Why does it matter and will an ETF change this?

The ongoing debate over Ethereum’s classification in the United States is garnering significant attention at the moment due to actions by the SEC and a possible ETF approval. The distinction between commodities and securities holds substantial implications for the regulation and future of crypto. If Ethereum were officially recognized as a commodity, the crypto landscape could witness transformative shifts in regulatory oversight, market participation, and investment vehicles.

Commodity vs security definitions

In the US, a commodity is generally defined as a basic good used in commerce that is interchangeable with other goods of the same type. This category includes items like gold, oil, and agricultural products. The Commodity Futures Trading Commission (CFTC) regulates commodities, focusing on market stability and fraud prevention. Conversely, a security represents an ownership position in a publicly traded corporation via stock, a creditor relationship with a governmental body or a corporation via bond, or rights to ownership as represented by an option. The Securities and Exchange Commission (SEC) oversees securities, emphasizing investor protection and disclosure requirements.

Ethereum’s classification has been a contentious issue. In 2018, the CFTC asserted jurisdiction over Bitcoin and other virtual currencies, classifying them as commodities. The SEC, however, has historically been more cautious. In 2018, SEC Director William Hinman suggested that Ethereum, which had initially been funded through an Initial Coin Offering (ICO), might not be a security due to its decentralized nature. Despite this, the lack of a definitive classification has left Ethereum in a regulatory gray area.

How would classifying Ethereum a commodity change things?

The potential recognition of Ethereum as a commodity would have several implications. Firstly, it would place Ethereum under the purview of the CFTC, which could lead to more consistent regulatory guidelines. This shift…