The cryptocurrency market has recently faced another downturn, widely attributed to Germany’s government selling off billions of dollars worth of seized Bitcoin. In such a climate of fear, even minor news can trigger significant price movements. On July 10, a major development emerged: the Chair of the U.S. Commodity Futures Trading Commission (CFTC) announced that an Illinois court had ruled Bitcoin (BTC) and Ethereum (ETH) qualify as digital commodities under the Commodity Exchange Act. This landmark decision suggests that roughly 70–80% of cryptocurrencies in the market are not securities. Following the news, Ethereum briefly rose to $3,100, signaling strong market approval.
👉 Discover how regulatory clarity is shaping the future of crypto investments.
Why Does It Matter If Cryptocurrencies Are Securities?
For years, the U.S. Securities and Exchange Commission (SEC) has been at odds with the crypto industry. In June last year, the SEC sued major exchange Coinbase, arguing that certain digital assets constitute securities and that Coinbase facilitated unregistered securities trading. This legal battle underscores a critical question: Are cryptocurrencies securities or commodities? The classification has far-reaching consequences.
If Ethereum were deemed a security, countless decentralized applications (DApps) and smart contracts built on its network would fall under stringent securities regulations. Compliance would become exponentially more complex and costly. Projects could face penalties for operating as “unregistered securities,” and innovation might slow as developers navigate legal uncertainty.
The SEC’s current chair, Gary Gensler, has stated that nearly all cryptocurrencies—except Bitcoin—should be classified as securities. His reasoning hinges on one key factor: decentralization. Bitcoin, he argues, is unique because its creator, Satoshi Nakamoto, disappeared after launching it and never influenced its development. As a result, Bitcoin operates through a decentralized network of miners and nodes, with no central entity driving its value.
This distinction is crucial—and it’s where the Howey Test comes into play.
Understanding the Howey Test: The Legal Benchmark for Securities
The Howey Test originates from a 1946 U.S. Supreme Court case, SEC v. W.J. Howey Co., and serves as the primary tool for determining whether a transaction qualifies as an investment contract—and thus, a security. The test evaluates four criteria:
- Investment of Money: An individual invests money or assets in a venture.
- Common Enterprise: The invested funds are pooled into a collective effort.
- Expectation of Profit: The investor anticipates financial gain from the investment.
- Efforts of Others: Profits depend primarily on the work of a third party or promoter.
Let’s apply this to a hypothetical cryptocurrency called NLCoin, issued by a project called LangChain.
- Investors purchase NLCoin with real money (investment of money).
- LangChain collects all proceeds to build a blockchain platform (common enterprise).
- Buyers expect NLCoin’s value to rise as the platform grows (expectation of profit).
- Their returns rely entirely on LangChain’s team to develop and promote the platform (efforts of others).
In this case, NLCoin clearly meets all four criteria and would likely be classified as a security.
Most early-stage crypto projects, especially those raising funds through Initial Coin Offerings (ICOs), fulfill at least the first three conditions. This is why the SEC has long argued that many digital assets should fall under securities law.
👉 See how evolving regulations impact your crypto portfolio strategy.
Bitcoin and Ethereum Are Digital Commodities—For Now
The Illinois court’s ruling that Bitcoin and Ethereum are digital commodities is a pivotal moment for the industry. It reinforces the idea that these leading cryptocurrencies operate more like decentralized commodities than centralized investment vehicles. This distinction reduces regulatory risk for investors, developers, and financial institutions alike.
With this clarity, traditional finance players may feel more confident launching crypto-related products—such as futures, ETFs, or custody services—without fear of unexpected legal challenges. It also strengthens the argument that mature, decentralized networks should be treated differently from early-stage token offerings.
While comprehensive federal crypto legislation remains pending in the U.S., this decision marks progress toward a clearer regulatory framework. It signals that not all digital assets are created equal—and that maturity, decentralization, and utility matter when determining classification.
👉 Stay ahead of regulatory shifts and grow your crypto knowledge today.
Core Keywords:
- Ethereum
- Bitcoin
- Cryptocurrency
- Security vs commodity
- Howey Test
- CFTC
- SEC
- Digital commodity
Frequently Asked Questions (FAQ)
Q: Why is Ethereum not considered a security?
A: Ethereum is viewed as a decentralized network where no single entity controls development or profits. Unlike tokens sold in ICOs with promises of returns, ETH’s value stems from its utility in powering smart contracts and DApps—not from reliance on a central team’s efforts.
Q: Does this mean all cryptocurrencies are safe from SEC regulation?
A: No. The ruling applies specifically to Bitcoin and Ethereum. Many other tokens—especially those tied to centralized teams or fundraising campaigns—may still meet the Howey Test criteria and be classified as securities.
Q: What happens if a cryptocurrency is labeled a security?
A: It must comply with strict disclosure and registration requirements set by the SEC. Exchanges listing such tokens could face legal action if they don’t follow securities laws, potentially leading to delistings or fines.
Q: How does the CFTC’s role differ from the SEC’s in crypto regulation?
A: The CFTC regulates commodities and derivatives markets, treating Bitcoin and Ethereum as digital commodities similar to gold or oil. The SEC oversees securities and focuses on investor protection in token offerings.
Q: Could this court decision be overturned?
A: While possible, this ruling sets an important precedent. Future cases may cite it when evaluating whether other large, decentralized networks qualify as commodities rather than securities.
Q: What should crypto investors do in light of this ruling?
A: Focus on well-established, decentralized projects with clear utility. Stay informed about regulatory developments and consider diversifying across asset types—commodities like BTC and ETH versus potential securities in newer ecosystems.