SEC’s Gensler Reiterates Bitcoin Alone Is a Commodity. Is He Right?

The government's stamp of approval seems to separate BTC from "crypto," but decentralization is a path.

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Updated May 11, 2023 at 4:25 p.m. UTC
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U.S. Securities and Exchange Commission Chair Gary Gensler has reiterated his claim that bitcoin (BTC) is a commodity. His interpretation is partially rooted in precedent and, one would hope, reality.

"Some, like bitcoin, and that's the only one, Jim, I'm going to say because I'm not going to talk about any one of these tokens [that] my predecessors and others have said [are] a commodity," Gensler said in an interview with CNBC’s Jim Cramer on Monday.

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Where Gensler departs from his predecessors is his unwillingness to define Ethereum the same way. As chairman, Gensler has long noted that the vast majority of crypto coins are under his agency’s remit.

“Crypto financial assets have the key attributes of a security,” he said recently, noting that there’s almost always a centralized entity that directs projects and stands to profit the most. That was certainly the case when the Ethereum blockchain first burst onto the scene in 2014 with an initial coin offering, a motley crue of builders and investors and institutions such as the Ethereum Foundation.

However, by 2018, then-SEC Director for the Division of Corporation Finance William Hinman said Ethereum ought to be classified as a commodity having reached “sufficient decentralization.” The open, publicly accessible network grew to include a diverse cast of stakeholders.

Gensler’s comments have injected some confusion into the markets, as is the case when any institution seems to backtrack on previously established guidance. But some bitcoiners view it as confirmation that bitcoin truly stands distinct from “crypto.”

OG bitcoiner Jameson Lopp, for instance, made the distinction recently saying most cryptos are “decentralized in name only,” or DINOs, and likely unregistered securities. MicroStrategy (MSTR) CEO Michael Saylor called for crypto’s “parade of horribles” to be stamped out by regulators.

In Saylor’s world, the government’s stamp of approval is a stepping-stone towards bitcoin being embraced as a “treasury reserve asset” for “politicians, agencies, governments and institutions” the world over. Because bitcoin is capped at 21 million coins, and cannot be debased as it acts as a buoy against the “melting ice cube” that is an inflating fiat economy.

In recent months, this Saylorism has been embraced by a growing number of bitcoiners. Critics, like developer Jacob Franek, point out the contradiction in believing that bitcoin’s value proposition is “granted” by the state.

But Franek isn’t quite right – it’s not a chicken and egg thing – the commodities classification stems from bitcoin’s actual material conditions of being highly decentralized.

Bitcoin is a distributed network powered by a digital asset – it has no single administrator or owner. Although people may buy BTC thinking they may profit from holding it – including profiting from the work of others who build useful apps or maintain its codebase – there’s no entity to which profits accrue, unlike with securities as defined by the SEC’s “Howey Test.”

In fact, part of bitcoin's strength is that it’s grown large enough that government classifications really do not matter. It’d be exceedingly difficult to take down the Bitcoin network, even for a nation-state. And if the SEC wanted to call it a security, who would it sue?

This doesn’t mean Saylor is correct in siccing securities watchdogs on crypto. Bitcoin is a cryptocurrency, and many assets could conceivably follow in its footsteps – hence SEC Commissioner Hester Peirce’s “Safe Harbor” proposal, which would give blockchain projects time and space to evolve beyond their founders.

Recent academic research from Baylor University noted that in its early years Bitcoin had a very limited number of stakeholders. It wasn’t always decentralized and at times early miners could have easily attacked the blockchain.

And though its founder Satoshi Nakamoto seemingly never profited from his work, his hashes stand in time, showing how most networks – at their beginning – are networks of a few.


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Daniel Kuhn

Daniel Kuhn is a deputy managing editor for Consensus Magazine. He owns minor amounts of BTC and ETH.

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