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Defining “Cryptos” Might Change Their Outlook

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By Gaurav S. Iyer, IFC Published : March 7, 2018

eth price forecast 7 March
iStock.com/Adrian Bysiak

Ethereum News Update

Looming over the cryptocurrency market is a big question mark concerning how regulators view the asset class.

Are they commodities? Are they securities? The difference might not seem important to investors, but it could have a huge impact on Ethereum prices.

After all, securities are tightly regulated.

Classifying cryptocurrencies as such could bind them to financial regulations like the Dodd-Frank Wall Street Reform and Consumer Protection Act and The Sarbanes–Oxley Act of 2002. This might, in turn, slow down industry progress by raising the cost of compliance.

Or it might not. This is uncharted territory for everyone involved, so it comes down to who gets the authority to regulate and how much authority they have to regulate.

There are two sides to this debate.

Securities

On this side, you have the U.S. Securities & Exchange Commission (SEC) arguing that tokens are securities because they give the “promise of a future return.” This position was set in stone when SEC Chairman Jay Clayton appeared on FOX Business this Tuesday. (Source: “SEC chairman fires this warning on cryptocurrencies,” FOX Business, March 6, 2018.)

He said:

“Many ICOs and many of the ones I’ve looked at specifically are securities…They are offerings of interest in an enterprise where the buyer of the ICO of the token, you can call it a token you can call it a security, is basically saying I’m investing with you with the promise of a future return.”

I should add that Clayton is a friend to the cryptocurrency community. As regulators go, he is particularly well-informed about blockchain technology and its uses; I wouldn’t put him in the category of anti-blockchain gatekeepers.

If there’s some who could forge a reasonable compromise on securities regulation, it would be him. So while this isn’t the ideal classification for cryptos, it could end up having a net positive effect simply by eradicating scams from the industry.

Commodities

The other big regulator in this debate is the Commodity Futures Trading Commission (CFTC), which took its case to a U.S. district court judge this year.

Yesterday, that judge returned a decision in favor of the CFTC. (Source: “US Judge Rules Cryptocurrencies Are Commodities in CFTC Case,” CoinDesk, March 7, 2018.)

“Virtual currencies are ‘goods’ exchanged in a market for a uniform quality and value. … They fall well within the common definition of ‘commodity’,” the judge wrote in the order on Tuesday.

With a precedent under its belt, the CFTC might have an easier time claiming that cryptos fall strictly under their mandate, a claim they’ve been making as far back as 2015.

However, the good news is that the CFTC seems focused on nabbing con artists rather than cracking down on technology entrepreneurs. As such, its actions are unlikely to hurt cryptocurrency prices over the long haul.

ethereum price chart

Analyst Take

Growth is often uncomfortable. There are moments of uncertainty that lead to sharp sell-offs, but ultimately, growth is the only road to (sustainably) higher prices. This is true for ETH prices and crypto prices more broadly.

With this in mind, we are leaving our $1,500 Ethereum price forecast for Q2 unchanged.





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