Ether and stablecoins are commodities, CFTC’s Behnam argues at Senate hearing

In the absence of federal legislation regulating the cryptocurrency markets, the question of whether cryptocurrencies should be classified as securities or commodities has emerged as a central debate, largely because it would delineate agency oversight.

In a series of interviews, Gensler has claimed that every cryptocurrency with the exception of Bitcoin is likely a security, and thus subject to SEC oversight. Ether, the native token of the second-biggest blockchain, Ethereum, has long been a wedge between the two agencies, with Gensler arguing that its move to a proof-of-stake consensus model would shift it to the security classification. 

Behnam has taken a different view, arguing on multiple occasions, including at the Senate Agriculture hearing on Wednesday, that Ether should be considered a commodity, and therefore overseen by the CFTC. In the CFTC’s complaint against FTX founder Sam Bankman-Fried in mid-December, the agency also included the stablecoin Tether as a commodity, a view Behnam repeated on Wednesday.

The most marked divide, however, came after a question from Sen. Kirsten Gillibrand (D-N.Y.) on the SEC’s and CFTC’s differing views on Tether. Behnam answered that there is a larger question of where stablecoins should go in terms of regulation.

“Not withstanding a regulatory framework around stablecoins, they’re going to be commodities in my view,” Behnam said. “It was clear to our enforcement team and the commission that Tether, a stablecoin, was a commodity.”

Gillibrand also said that she planned to reintroduce the draft of her comprehensive crypto legislation, the Responsible Financial Innovation Act, with cosponsor Sen. Cynthia Lummis (R-Wyo.), in mid-April.

If the CFTC takes the broader view that all stablecoins are commodities, it could set up a clash with the SEC. The agency has told crypto firm Paxos—issuer of the third-largest stablecoin, Binance USD—that it plans to sue the company for violating investor protection laws, alleging that BUSD is an unregistered security.

The agencies’ lack of consensus also leaves open the question of how key banking regulators—including the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation—would classify stablecoins.

Although Behnam said he’s working directly with the SEC on opportunities for coordination, he added that the CFTC has not received legal guidance from the agency on how it differentiates commodities from securities.

In a recent interview with New York magazine, Gensler insisted that he “loves” the CFTC and would not “say anything negative” about the commission.