Uncertainty continues to torment crypto investors.
After last week’s dip, the crypto market turns mixed. The bitcoin price is down 3% to just under $20,300 while ethereum’s price is up 3% to $1,160. Binance rose 5.6% over the past week, while XRP
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Meanwhile, this past Monday the Securities and Exchange Commission (SEC) Chair Gary Gensler made what many consider a game-changing statement that might clear up some of the uncertainty in the crypto market.
In a recent CNBC interview addressing crypto regulation, Gensler singled out bitcoin as the only cryptocurrency he would label as a commodity. “Some like bitcoin, and that’s the only one I’m gonna say…my predecessors and others have said, they’re a commodity,” he said.
The rest of the cryptocurrencies, he added, should be classified as securities and regulated by the SEC: “Many of these financial assets, crypto financial assets have the key attributes of a security… the investing public is hoping for a return just like when they invest in other financial assets we call securities.”
[Ed note: Investing in crypto is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Gary Gensler
Zooming Out
Gensler’s statement is a sequel to the landmark bipartisan crypto legislation I wrote about last week:
“The Responsible Financial Innovation Act seeks to classify digital assets into securities and commodities and regulate them accordingly. This will ‘give digital asset companies the ability to determine what their regulatory obligations will be and give regulators the clarity they need to enforce existing securities and commodities trading laws.’ For example, bitcoin and ether, which fall into the ‘commodity’ bucket, would be regulated by the Commodity Futures Trading Commission (CFTC).”
The SEC’s unofficial validation of bitcoin as a commodity brings the apex cryptocurrency one step closer to the store of value commodity status similar to gold. It could also speed up the approval of a bitcoin spot ETF (which would be under the purview of the SEC).
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Digital asset fund manager Eric Weiss tweeted: “Gensler is the 2nd consecutive SEC Chair to declare that bitcoin is a commodity, making it all but impossible for this classification to be altered in the future. Very significant indeed.”
And Microstrategy CEO, Michael Saylor, stated that the labeling of bitcoin as a commodity “is essential for any treasury reserve asset.” He says the classification “allows politicians, agencies, governments, and institutions to support bitcoin as a technology and digital asset to grow the economy and extend property rights and freedom to all.”
On the other hand, Gensler hints that regulatory watchdogs still view even major altcoins as purely speculative securities with little utility. And if the Responsible Financial Innovation Act formalized them as such, it could create extra legal and tax barriers to their adoption.
Looking Ahead
Bitcoin was largely built on the promise of a decentralized, digital store of value, but so far, it hasn’t acted as such.
Over the past few years, bitcoin has become increasingly correlated to the tech-heavy Nasdaq index. And instead of a hedge, the supposed “digital gold” has grown into a high beta version of growth stocks.
However, if regulators officially classified bitcoin as the first digital commodity, we’d likely to see far more institutional adoption. This could decorrelate bitcoin from growth/tech stocks as well as altcoins and help it finally fulfill its promise.
That’s bitcoin’s key differentiator that could end up being its biggest driver in the long run.
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