The regulators have "Massively" cryptocurrencies misunderstood and urgently need to change course, said an expert in international banking law. Tokens should not be treated as money, nor Bitcoin (BTC) has futures contracts.
Professor Emilios Avgouleas, who is freely affiliated with IOHK, the main developer of the Cardano project (ADA), has the chair of international banking law and finance at the University of Edinburgh. He fears that unless the industry becomes serious about defining cryptocurrencies, regulators could destroy it.
Talking about Crypto Briefing At the beginning of this month, Avgouleas explained that regulators have failed in trying to use existing legal frameworks to govern utility tokens. Although he believes that some tokens can be legitimately classified as securities, none – and above all Bitcoin – could satisfy the current legal definition of merchandise.
"A commodity must be a tangible entity", claimed Avgouleas. "Bitcoin, for example, has no physical representation and therefore is not a commodity.The idea that you can have a future Bitcoin is a huge misunderstanding."
"For the head, them [CME and Cboe] they were wrong as they came ", He added.
Legal status of Bitcoin
It's been just over a year since the CME Group launched its BTC futures contracts. At the news, bitcoins have reached the highest rating ever achieved, at just under $ 20,000 per currency. At the current price of about $ 4,200, this represents a decline in the value of 80% in just over a year.
Futures contracts are essentially agreements made to exchange a commodity – including bitcoin – at a given time and at a certain price. Originally conceived as means to create artificially stable prices in agriculture, they are now used by speculators to effectively bet on the future value of an asset.
A US judge ruled that the bitcoin could be regulated as a commodity at the beginning of March. This happened three months after the CBOE – another derivatives platform – introduced its first bitcoin futures. Both CME and Cboe issue futures contracts for other goods that have a physical entity, including grain, oil and precious metals such as gold and silver.
The regulatory debate in America focused on the fact that cryptocurrencies, especially those sold in the ICO boom last year, should be classified as securities. The Securities and Exchange Commission (SEC) warned projects in the middle of last year that it would treat all new ICOs as securities sales. In November, it issued the first order for two projects, Airfox and Paragon, to repay investors.
Things are likely to get even more complicated because, at the end of last week, two members of Congress have unveiled a new bill outlining plans to exclude cryptocurrencies from a stock classification.
Is Bitcoin a commodity?
People buy utility tokens like Ether (ETH) or ADA, because they offer access to specific services that otherwise would remain unavailable; how to pay "gas" taxes for decentralized applications. They are not purchased for the understanding of future returns in a company or in a project. Avgouleas believes that Bitcoin has the same characteristics as these utility tokens.
Therefore, in his view, they should not be classified as goods. Ignoring a key aspect of what makes a commodity – a tangible object – not only distorts legal terminology, but adds further regulatory uncertainty that makes it more difficult to use cryptocurrencies in the mainstream. "Cripto must work without friction" He said Avgouleas. "But this creates friction and could easily kill technology."
Cryptocurrencies have unique characteristics that make them difficult to classify as security or commodity. Avgouleas maintains that regulators must recognize it; utility tokens must become their only asset class with their own legal framework; provide the institutional certainty necessary to participate.
He said: "Those who wish, for legitimate reasons, to invest in this asset class [cryptocurrencies] it can do it with the awareness that it is a special kind of similar financial product with its unique advantages and risks ".
The author is invested in digital resources, including BTC and ETH that are mentioned in this article.