It is close to a decade now since Bitcoin was invented. Designed originally as a peer-to-peer currency, but for obvious reasons, Bitcoin is now considered more of an investment than currency. This has made the classification of Bitcoin difficult.
The debate on the financial status of Bitcoin has been on for quite some time within the world of FinTech. Over the years, Bitcoin has been considered as security, currency, or commodity depending on perspective. Most Bitcoin enthusiasts consider Bitcoin as security, while the U.S. Security and Exchange Commission (SEC) sees it as a currency and Commodity Futures Trading Commission (CFTC) as a commodity.
Bitcoin As Securities
According to business dictionary securities are “Financing or investment instruments (some negotiable, others not) bought and sold in financial markets, such as bonds, debentures, notes, options, shares (stocks), and warrants.” For Bitcoin to become security, it has to pass the Howey test which defines security as when “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party,” Obviously, Bitcoin fails the Howey test. The fundamental reasons why Bitcoin cannot entirely be classified as security is because it is not regulated like other securities and it doesn’t have a third party involvement.
The only reason why Bitcoin could be considered security is mostly because it has monetary value and can be interchanged for other commodities. Most people trade Bitcoin just precisely the way stocks are traded, since stocks are securities, that means Bitcoin has securities tendencies. Also, Bitcoin could also be used as bonds if the government will approve. Owning it can be an asset since it has the potential of rising in value in the future. And even though it doesn’t have a third party involvement, its value is widely acknowledged both within and outside the crypto community.
Despite these, a judge in the United States backed by Commodity Futures Trading Commission (CFTC) have ruled that Bitcoin should be regulated as a commodity. Also, SEC chairman Jay Clayton ruled against Bitcoin being security.
Bitcoin as Currency
SEC Chairman, Jay Clayton is of the opinion that Bitcoin cannot be security since it is already serving as currency and also has the tendencies of replacing national currencies. In his interview with CNBC, he stated “Replace the dollar, the yen, the euro with Bitcoin. That type of currency is not a security.”
The primary goal of Satoshi for Bitcoin is to make it a decentralized currency that could help solve all the limitations of traditional currencies, so apparently, Bitcoin was invented as a currency, not as securities.
Bitcoin as Commodity
On the other hand, Bitcoin is classified as a commodity like gold, since Bitcoin can be bought with Fiat and other digital currency. And mostly because of its inherent value, its price is the same globally.
Business dictionary defines a commodity as “a reasonably interchangeable good or material, bought and sold freely as an article of commerce. Commodities include agricultural products, fuels, and metals and are traded in bulk on a commodity exchange or spot market.”
CFTC is of the opinion that Bitcoin is a commodity, and just like other commodities, it should be regulated, since it falls into the definition of commodity.
In the end, Bitcoin can either be a security, currency or commodity depending on the perspective you are looking at it from.