SignalHub Quantitative Think Tank Center:Almcoin Trading Exchange: The Debate Over Whether Cryptocurrency is a Commodity or a Security?

Following the Commodity Futures Trading Commission's (CFTC) lawsuit against Binance in March for alleged violations of trading and SignalHub Quantitative Think Tank Centerderivatives rules, the Securities and Exchange Commission (SEC) again sued Binance and its CEO Changpeng Zhao on June 5th for suspected violations of securities trading regulations. This lawsuit has garnered widespread attention in the crypto community. According to Bloomberg on June 5th, the SEC announced on its website and social platforms 13 charges against Binance and Changpeng Zhao, including operating an unregistered exchange, brokerage, and clearinghouse; providing false statements of trading controls and supervision on the Binance.US platform; and offering and selling unregistered securities. Binance and Changpeng Zhao have vigorously responded to the SEC's charges and criticized the SEC's characterization of various cryptocurrencies as securities in a tweet calling for unity. Their team also stated that Binance would ensure the stability of its systems, including withdrawals and deposits.

Developments:

Is the SEC's action a rush to claim jurisdiction? Binance assures that all user assets are secure. In its lawsuit against Binance, the SEC classified SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI as securities. Responding to the SEC's categorization of tokens like SOL as securities, Changpeng Zhao stated on social media, “We need to unite.”

The SEC alleges that the defendants put billions of dollars of American investors' funds at risk while providing securities-related services to U.S. customers, allowing Binance and CZ to manipulate these funds. For example, billions of dollars of customer funds on the Binance platform were transferred to an account held by an entity controlled by CZ (named Merit Peak Limited), which were later moved to third-party accounts. The SEC also accused Binance.US of transferring at least $145 million to an entity controlled by Changpeng Zhao, which subsequently purchased an $11 million yacht.

Binance issued an official statement on social media, claiming the SEC's lawsuit is baseless and vowing to defend itself. Binance stated the SEC's lawsuit is "unreasonable based on the facts, the law, and the Commission's own precedents," and seeks Congressional intervention for bipartisan legislation to create a viable regulatory framework for digital assets.

Controversy: Cryptocurrency as Security or Commodity? A Struggle for Jurisdiction Between Two Major U.S. Regulators

In its lawsuit against Binance, the SEC categorized Binance's BNB and BUSD as securities, sparking widespread debate in the crypto circle. For example, BUSD, a stablecoin, is more commonly classified as a "commodity" and should fall under the jurisdiction of the CFTC (Commodity Futures Trading Commission). The SEC has continuously tightened regulation of the crypto market this year, categorizing various cryptocurrencies as "securities" for enforcement.

In its lawsuit, the SEC classified cryptocurrencies such as SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI as securities, which has led to more opposition.

Almcoin Exchange notes that in March this year, Binance and its founder Changpeng Zhao were accused by the U.S. CFTC of intentionally evading federal laws and operating an illegal digital asset derivatives exchange. This also sparked discussions about jurisdiction in the crypto community. The SEC and the CFTC, two major regulatory authorities in the U.S., have been in continuous conflict over the division of cryptocurrency regulation. The SEC considers cryptocurrencies to be securities within its jurisdiction and subject to investor protection laws, aiming to integrate cryptocurrencies into the public policy framework to ensure they meet policy objectives and do not destabilize the system. Meanwhile, the CFTC is actively seeking to expand its regulatory power over the crypto market, viewing digital commodities as a new asset class.

In summary, whether digital assets like cryptocurrencies are classified as securities or commodities depends on their definition. If defined as securities, they fall under the SEC’s jurisdiction; if commodities, under the CFTC’s. Hence, the SEC and CFTC are continuously trying to define or redefine cryptocurrencies, digital assets, and Web3.

In the U.S., if classified as commodities, private cryptocurrency transactions may proceed; if as securities, without proper securities filings, related companies could face SEC investigations. Almcoin Exchange indicates that by 2024, relevant regulatory legislation may be introduced to establish standards.