In the United States, there is often a power struggle between the CFTC and the SEC. These regulators try to assume more power, seeking to usurp the other.
This was certainly the case with crypto.
Gary Gensler was frequently asked if Ethereum was a security or not. He waffled, never directly answering the question. There was good reason for this.
Commodities come under the umbrella of the CFTC. The SEC only has authority when dealing with a security. If Gensler said that Ethereum was not a security, he would have no claim over it.
This was the case with Bitcoin. The SEC was powerless against that since it was determined to be a commodity.
Uncertainty with regulation regarding crypto is something the US Congress is looking at clearing up. The GENIUS Act gets a lot of attention but there is another bill that could have equal impact.
The CLARITY Act Changes Crypto Completely In The US
One of the major problems in the US is that something is often legal according to the CFTC yet goes against the SEC. This is why most hedge funds are not headquartered in the US. There are too many instances where they could be in compliance with one regulator yet open to action from the other.
The CLARITY Act will clear up some of the power struggle. It clearly stated that base layer coins, such as Ethereum and Solana, are commodities. This means they are outside the reach of the SEC.
That said, the bill’s language broadly defines digital assets “intrinsically linked to a blockchain system” as digital commodities, provided they are primarily used to transfer value within that system.
This sweeping definition potentially brings nearly all major cryptocurrencies, including Ethereum [ETH], Solana [SOL], Cardano [ADA], Ripple [XRP], and Dogecoin [DOGE], under the Commodity Futures Trading Commission’s purview.
Unfortunately, it is not all sunshine and roses.
As usual, politicians only do part of the job.
Assets that qualify as securities remain the SEC’s turf, but the bill offers no sharp line for when something stops being a commodity and becomes a security.
That gray zone may still spark debate.
While the present administration is pro-crypto, this could change in an instance if something is not law. Here we have the potential for the SEC still to revert back to what happened under Gensler, although the base coins will be off limits.
Staking Coins
The SEC did provide some good news to the crypto community.
Again, this is not law but it does show the mindset of the Commission. They are removing as many obstacles as possible from impeding the crypto industry.
In a pivotal shift for U.S. crypto policy, the Securities and Exchange Commission clarified on May 29 that most staking activities on proof-of-stake (PoS) blockchains do not constitute securities transactions—marking a major departure from the agency’s previously aggressive stance under former Chair Gary Gensler.
Gary Gensler called everything a security. It is refreshing to see the SEC realize that 1930s law do not apply to digital assets. Obviously, there is a lot of uncertainty without clarity from Congress but common sense should prevail.
The fact that the Biden Administration, reportedly being led by Elizabeth Warren, tried to kill crypto shows how corrupt things were. Gensler was the ideal puppet for this.
Coin staking has long caused controversy. It appears the SEC, for the moment, is stepping back from this.
Hester Peirce, the Division of Corporation Finance and Commissioner, essentially captured the essence of the SEC’s approach by explaining that “certain proof-of-stake blockchain protocol ‘staking’ activities are not securities transactions within the scope of the federal securities laws.”
Pierse clarifies that staking is a voluntary effort by users to secure a network, but the previous regulatory uncertainty has been discouraging for Americans. This “artificial constraint” harmed decentralization, censorship resistance, and, therefore, the credible neutrality of proof-of-stake-based blockchains.
The challenge with crypto is the fact that 95% of the industry is focused upon price-go-up. It is trading, wealth accumulation, and green candles. This is what gets agencies such as the SEC stirring.
What was overlooked is there is a technological reason for staking. It is a method used for network security. Block validators are crucial to the operation of a network, to maintain the ledger of activities. Resiliency comes from decentralization, which means more block validators.
Staking is the main method used under POS networks. This mirrors mining for the POW chains.
The shift in attention from wealth accumulation to the structural role of staking in PoS-based networks suggests that U.S. regulators are becoming more open-minded about the cryptocurrency sector.
Advantage of CFTC
The CLARITY Act, if passed, would be a boom for crypto.
When it comes to oversight, the CFTC has historically operated with a light touch. The SEC gets all the headlines because it is continually taking action. That, of course, does not mean the CFTC is without teeth. It can bring down some heavy actions upon wrongdoers.
That said, the CFTC leans to more market friendly approaches. The commodities market is nowhere near as regulated as with securities. Much of this stems from the approach of the regulators.
People like Gensler want to control the markets. They believe that it is their place to steer how things unfold. With the CFTC, it only steps in when nefarious actors rear their heads.
Passage of this bill removes the premise that crypto are mostly "unregistered securities". It was the basis of Gensler's operations.
Instead, we will get most crypto being viewed as digital commodities. This means that, at the core level, we are dealing with a different product. What is built on top could certainly end up as securities but basic coins and tokens would be exempt.