Illinois confirms that BTC and ETH are digital commodities?

Source: AiYing Compliance

Yesterday, according to Fox Business reporter Eleanor Terrett, Rostin Behnam, chairman of the U.S. Commodity Futures Trading Commission (CFTC), said that the Illinois court has confirmed that BTC and ETH are digital commodities under the Commodity Exchange Act. This ruling only applies to Illinois and does not represent the position of other states or the federal government. So don't get too excited. After all, it's not a federal bill. Don't always get excited about the meaning of a "revolutionary milestone." After all, there are fifty states in the United States, each with its own government system and legal system. In addition, the United States also has a federal district, the District of Columbia (Washington, D.C.). In addition to these 50 states and a federal district, the United States also has some overseas territories, such as Puerto Rico, Guam, the U.S. Virgin Islands, the Northern Mariana Islands, and American Samoa, which also enjoy varying degrees of autonomy in some respects.

1. Which states have made it clear that BTC and ETH are digital commodities?

U.S. district courts have explicitly classified Bitcoin (BTC) and Ethereum (ETH) as commodities in multiple cases. Here are the courts’ cases:

1. CFTC v. McDonnell: Judge Jack B. Weinstein of the District Court for the Eastern District of New York ruled in 2018 that Bitcoin is a commodity regulated by the Commodity Futures Trading Commission (CFTC). The case involved allegations of fraud in virtual currencies, and the judge ruled that the CFTC has the authority to regulate virtual currencies such as Bitcoin.

2. CFTC v. My BigCoin: Judge Rya W. Zobel of the District Court for the Massachusetts District ruled in 2018 that virtual currencies are commodities under the Commodity Exchange Act. The case involved fraud by My BigCoin, and the judge determined that virtual currencies meet the broad definition of commodities in the Commodity Exchange Act.

3. Uniswap Class Action Case: When Judge Katherine Polk Failla of the Southern District of New York dismissed the class action lawsuit against Uniswap in 2023, she made it clear that Bitcoin and Ethereum were "crypto commodities" and not securities.

So far, no U.S. state has explicitly classified Bitcoin (BTC) and Ethereum (ETH) as securities. However, the U.S. Securities and Exchange Commission (SEC) has expressed on multiple occasions its view that many cryptocurrencies should be considered securities. SEC Chairman Gary Gensler has said that in addition to Bitcoin, most other cryptocurrencies may meet the definition of securities, especially Ethereum (ETH).

The SEC’s position is reflected in the following aspects:

1. Ripple (XRP) Case: In December 2020, the SEC filed a lawsuit against Ripple Labs, claiming that it conducted an unregistered securities offering by selling XRP. Although this case focuses on XRP, it reflects the SEC’s regulatory attitude towards most cryptocurrencies.

2. SEC’s lawsuit against Coinbase: In a recent legal action, the SEC sued Coinbase, claiming that some of the cryptocurrencies on its platform are unregistered securities. The lawsuit involves multiple cryptocurrencies and further demonstrates the SEC’s strict regulatory attitude towards crypto assets.

The SEC’s position on cryptocurrencies is generally based on the application of the Howey test in the Securities Act. The Howey test is a standard used to determine whether a transaction constitutes a securities investment contract. Under this test, if a transaction involves the investment of money in a common enterprise with the expectation of profits that are primarily dependent on the efforts of others, the transaction may be considered a security.

Although the SEC has a strict regulatory attitude towards cryptocurrencies, there are currently no specific state laws that clearly classify Bitcoin and Ethereum as securities. In May this year, the House of Representatives voted to pass the 21st Century Financial Innovation and Technology Act, also known as the FIT21 Act. Although if passed, this bill will clarify the US regulatory framework for cryptocurrencies, promote the safe launch of blockchain projects in the United States, clarify the regulatory responsibilities of the SEC and CFTC, and end the feud between the SEC and CFTC and the torture of project parties, but overall, 71 Democrats and 208 Republicans voted in favor of the bill, and 3 Republicans and 133 Democrats voted against it. President Joe Biden opposed the bill with a policy statement, although he did not say he would veto it. The bill will be revised and submitted to the Senate, and Biden will eventually need to approve it, and the specific time is yet to be determined.

2. Illinois Crypto Regulatory Policy

Aiying Aiying sorted out Illinois' policies, and here are a few key points:

1. Licensing requirements

Illinois is promoting a cryptocurrency licensing system similar to New York's BitLicense. This system requires cryptocurrency companies operating in Illinois to obtain specific licenses from the state government to ensure that they meet a series of strict security and compliance requirements. This includes:

• Background checks: Conduct detailed background checks on the company and its executives to ensure that they are not involved in any illegal activities.

• Financial requirements:The company needs to show that it has sufficient financial resources to support its business and ensure that it can fulfill its obligations to customers.

• Compliance Program: Companies must have a comprehensive compliance program, including anti-money laundering (AML) and know your customer (KYC) policies

2. Tax Policy

Illinois also has clear regulations on the tax treatment of cryptocurrencies. Cryptocurrencies are considered property, so capital gains taxes need to be reported when they are traded. This means:

• Capital Gains Tax: When you buy and sell cryptocurrencies, you need to pay taxes based on their increased value, just like buying and selling stocks.

• Record Keeping: Individuals and businesses need to keep detailed transaction records in order to accurately report tax information

3. Consumer Protection

Illinois takes consumer protection very seriously, especially in the field of cryptocurrency. To this end, the state government has taken the following measures:

• Transparency requirements: Require cryptocurrency companies to provide customers with clear terms of service and fee structures to prevent fraud.

• Complaint mechanism: A dedicated complaint mechanism has been established, and consumers can report any illegal activities or unfair treatment to the state government

Currently, mining companies such as Sangha Systems have established a large-scale cryptocurrency mining facility in Illinois and plan to provide energy by building solar power arrays. Bitcoin ATM: CoinFlip, headquartered in Chicago, Illinois, operates more than 2,500 Bitcoin ATMs across 47 states. In addition, cryptocurrency exchanges such as FTX.US have set up offices in Chicago.

Reference Information:

• https://x.com/EleanorTerrett/status/1811042341521703213

• https://freemanlaw.com/cryptocurrency/illinois/

• https://www.coindesk.com/policy/2023/02/27/illinois-officials-pushing-state-crypto-licensing-to-emulate-new-yorks-bitlicense/

• https://www.cftc.gov/