Money or Assets? How US Governments Define Cryptocurrencies

Cryptocurrencies — what are they? Money? Commodities? Securities? Utility tokens? Or something else? Few national governments seem to be in any kind of agreement on this question, and for now, at least, their divisions have given such currencies as Bitcoin and Ethereum a floating, indeterminate status on the global stage.

United States: securities, commodities, property, money

As an indication of how difficult it may be for world governments to ever reach a global consensus on the status of cryptocurrencies, it's worth pointing out that there's currently little consensus within nations — let alone among them. This is nowhere more evident than in the United States, where five separate agencies have all had their own competing classifications of cryptocurrencies.

First up is the Securities and Exchange Commission (SEC), which — up until June — defined cryptocurrencies in general as securities, meaning assets in which someone invests in the expectation of receiving a return. In March, for example, it issued a public statement indicating that it would regulate anything being traded via an exchange platform as a security

Bitcoin declined by 10 percent following this announcement, yet the statements of other American authorities and agencies differ with the SEC's assertion that cryptocurrencies are securities. Because, also in March, a New York federal judge ruled that the Commodities and Futures Trading Commission (CFTC) can regulate BTC and other currencies as commodities, putting them on the same level as gold, oil and coffee.

If this wasn't already confusing enough, the Internal Revenue Service (IRS) has defined cryptocurrencies as taxable property since March 2014, when it declared

Observers would be forgiven for supposing that three separate definitions were enough, yet two additional agencies treat cryptocurrencies as money. The U.S. Office of Foreign Assets Control (OFAC) is the bureau of the U.S. Treasury Department responsible for enforcing economic sanctions, which can include sanctions against certain cryptocurrencies (e.g., the Petro). In April, it announced that it would be treating "virtual currencies" in the same way as fiat currency, making any individual who handled a cryptocurrency covered by an economic sanction liable for prosecution.

Likewise, the Financial Crimes Enforcement Network (FinCEN) presides over the illegal use of money, including laundering and the financing of terrorism. It updated its regulations in March 2013 to cover all "persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies," which required exchanges (classified as "money transmitters") to implement Know Your Customer (KYC) and Anti-Money Laundering (AMC) measures. By expanding its regulations, it brought cryptocurrencies under the concept of money, in contrast to the other governmental agencies who classified it as either a commodity, security or property.

Of course, such classifications aren't mutually exclusive, yet they introduce confusion and complexity for individuals and businesses that want to comprehend just where they stand legally with cryptocurrencies. Fortunately, there are growing signs that some of the above agencies are beginning to converge on shared definitions.

In June, the SEC finally clarified that it doesn't regard either Bitcoin or Ethereum — as they are the two largest currencies by market cap — as securities and that it would focus instead on Initial Coin Offerings (ICOs). This move came a month after CFTC commissioner Rostin Behnam delivered a speech that emphasized the increasing collaboration between his commission and the SEC.

Such steps are modest and preliminary, but given that the SEC no longer regards such currencies as Bitcoin and Ethereum as securities, they at least narrow down the field of what cryptocurrencies are in the United States. That said, they still aren't legal tender, although that hasn't stopped thousands of U.S.-based businesses from accepting Bitcoin and other currencies as a means of payment.