Is Bitcoin a Commodity or Security?

Cryptocurrencies or bitcoin have no sole regulatory body and since we are just at the doorstep of what digital assets could offer in the future, there is a battle between bodies like the CFTC and the SEC to bring Bitcoin under their jurisdiction. What’s making the news is that this turf war is being fought publicly.

In 2022, Gary Gensler, the head of the SEC, made a public statement calling for his agency to regulate cryptocurrencies, Bitcoin, and taxes. Rostin Behnam, on the other hand, who is the head of the CFTC fought back by suggesting that Bitcoin could double once his agency gets to set the industry rules at the NYU School of Law. a doubling would spiral Bitcoin from $20,000 to $40,000 in no time.

The decision of whether cryptocurrencies come under the commodities or securities banner decides whether Bitcoin and taxes paid on them will be affected or not. By the end of this article, we present to you the current scenario of who could be elected as the primary regulatory body for cryptocurrencies.

So Who is The SEC?

The Securities and Exchange Commission is an independent agency that is responsible for overseeing

• Mutual funds
• Investment advisors
• Securities brokers and dealers
• Securities exchanges

The Commission aims to promote the disclosure of market information and fair dealing to prevent fraudulent transactions. The US federal government agency was created in the aftermath of the crash of Wall Street in 1992 to enforce laws against market manipulative practices.

What Defines Security?

In the US, a “security” is defined as a financial asset that can be traded and is broadly classified into

• Equity securities (common stocks)
• Debt securities (debentures, bonds, banknotes)
• Derivatives (swaps, options, forwards, futures)

Cryptocurrency Regulations and SEC

The SEC stated that 99% of cryptocurrency trading is most likely security trading and comes under their spectrum of regulations. In May 2022, the SEC renamed its Cyber unit to Crypto Assets and Cyber Unit to enforce cryptocurrency regulations. The commission has a growing number of industry settlements showing that they are accepting the crypto business by following all the security laws.

Who is The CTFC?

The Commodity Futures Trading Commission is an independent agency of the US government responsible for regulating US derivative markets. In December 2000, Congress instructed the CRTC and SEC to regulate single stock futures jointly. The CFTC’s authority expanded to the swap markets in 2010.

Commodity Trading and Cryptocurrencies: What is Crypto Commodity?

The CFTC gets involved when Bitcoin or any other virtual currency is used as a derivative contract. In case of manipulation or fraud involving digital currencies traded in interstate commerce, the CFTC is brought to attention.

The Bottom Line: Is Bitcoin a Commodity or a Security?

Current guidelines classify crypto as security if people are pooling their money in an investment contract with a common enterprise to make a profit. In the case of Bitcoin, nearly 100% of consensus classifies it as a commodity and some even be the only cryptocurrencies that can evade federal securities laws.

The Senate Agriculture Committee regulates the trading of commodities like pork bellies, corn, and wheat and they say cryptos should be considered as a digital commodity because they are being traded on exchanges

Now the CFTC’s claim that Bitcoin could double in price comes from the fact that financial markets thrive in certainty. When you create a field for industry, it tends to attract more participants and any regulatory rules for crypto would attract institutional money from Wall Street. The SAC is spearheading the legislation to make CFTC the primary regulator for cryptocurrencies and when the commission is publicly claiming to boost the price of Bitcoin, it’s clear who will be supported by the crypto industry.

FAQs on Bitcoin and Taxes: Is Taxing Affected When Bitcoin is Classified as Commodity or Security?

• Do you have to pay taxes in Bitcoin?

The Internal Revenue Service (IRS) classifies cryptocurrencies as property when it comes to Bitcoin and taxes to be paid on it. So when you receive Bitcoin as payment (like you would with currencies), you have to pay taxes on its current value. On the other hand, if you sell Bitcoin for a profit, you will be taxed on the difference between the proceeds of the sale and your purchase price.

• Can Bitcoin be used to avoid taxes?

The IRA allows the investment of unique assets such as

• Precious metals
• Real estate
• Cryptocurrency

So any trading of Bitcoin or other cryptos within the account cannot be subjected to capital gains tax. However, taxes will be triggered when the money is withdrawn.

• How much taxes do you have to pay on Bitcoin?

Generally, the IRS treats gains on Bitcoin or other cryptocurrencies the same way it treats all kinds of capital gains. Thus, your digital assets (in this case, Bitcoin) will warrant ordinary tax rates on short-term capital gains if it’s held for less than a year. The tax rate also depends on your income, i.e., up to 37% in 2022.

• How does the IRS know if you have cryptocurrency?

The only way the IRS can know if you are owning crypto is through trading platforms or crypto exchanges. Any transactions you do on these mediums are always reported directly to the IRS through Forms 099-K or 1099-B.