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FameEX Hot Topics | Regulatory Uncertainty over ETH Classification as Security or Commodity Drives 90% of Ethereum Supply off Exchanges

2023-03-28 10:54:00

The regulatory classification of Ethereum has been a contentious issue for quite some time now. On March 27, the Commodity Futures and Trading Commission (CFTC) charged Binance for not complying with federal laws, and in its lawsuit, it claimed that Ethereum is a commodity. This announcement came just weeks after the Securities and Exchange Commission shut down Kraken's crypto-staking service, in which ETH was labeled as a security. The lack of regulatory clarity in the industry is attributed to conflicting views on whether Ethereum should be classified as a security or a commodity. This is not the first occurrence; earlier this year, SEC Chair Gary Gensler reiterated the same view as his agency, and the CFTC Chair stood in tandem with ETH being a commodity.

According to their definition, a "security" is a financial asset or instrument that has value and can be bought, sold, or traded. Examples of such securities include stocks and bonds. On the other hand, a "commodity" is a physical good that is traded on exchanges, and its value is determined by supply and demand. Since Ethereum's staking feature is a key component of being part of the network, it fits into the category of security much more than a commodity. Bitcoin, which shares a likeness with Gold on a financial level, is closer to being a commodity than a security. If Ethereum is classified as a "security," it would impact the exchanges planning to list it. These exchanges and platforms would need to register as a "securities" broker-dealer with the SEC or delist ETH to protect themselves from selling securities illegally. This would not only affect centralized exchanges, but also decentralized exchanges such as SushiSwap.

The regulatory uncertainty surrounding Ethereum has led to a decline in confidence in exchanges. The total Ethereum supply on exchanges fell to just 10.3% on March 27 as users shifted their ETH to self-custody wallets or staked it. This is the lowest the supply has been since the launch of the cryptocurrency in 2015. ETH holders' confidence in these exchanges has remained unrestored following the FTX collapse, which is why the exchanges now hold less than 12.5 million ETH ($25.4 billion). In conclusion, the regulatory classification of Ethereum has far-reaching implications, and the lack of regulatory clarity is causing uncertainty and decreasing confidence in exchanges. Until there is a clear resolution, Ethereum holders are likely to continue shifting their coins to self-custody wallets or staking them.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.

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