Following the lawsuits filed by the SEC against Binance and Coinbase at the beginning of last week, many investors began to investigate what commodities and securities are. In this article, we will examine together what the definitions of commodity and securities mean.
During this process, when the SEC filed a lawsuit against Binance and Coinbase, many cryptocurrencies were accused of being securities. Thus, the number of cryptocurrencies qualified as securities increased to 55, excluding 13 tokenized stocks.
What is a Securities?
The word securities is used to refer to goods that can be transported. Securities refer to valuable papers that can be transported and used as investment instruments.
The regulation of these valuable documents is subject to certain laws and rules. Companies and individuals cannot issue these documents randomly. In order to prepare negotiable instruments, permission must be obtained from the Capital and Markets Authority. It is not possible to take any action in this regard unless permission is obtained from regulatory authorities.
In short, asset-backed securities are the general name given to instruments that have exchangeable, transferable financial value.
What are Securities?
Stocks
Bonds
Usufruct Shares
Profit and Loss Sharing Documents
Bank Bills
Financial Bills
Debt and Promissory Notes
Asset-Backed Securities
Bonds Convertible with Shares
Participation dividend certificates
What is a commodity?
Commodity is the name given to all traded goods such as gold, silver, oil, natural gas, copper, cotton, corn, wheat, sugar and coffee. The markets where the buying and selling of these goods are carried out are called Commodity Exchanges, and there are 133 commodity exchanges in Turkey affiliated with the Union of Chambers and Commodity Exchanges of Turkey.
Factors affecting commodity prices include seasonal changes, natural disasters, economic activities and supply and demand.
What is the Difference Between Commodities and Securities?
To put it simply, a security is traded as a financial instrument. Although both securities and commodities have a monetary equivalent in the market, securities can be bought and sold between multiple parties rather than between two individuals. As we have illustrated above, shares are securities and can be bought and sold between more than one person.
What Does It Mean for Cryptocurrencies to Be Considered as Securities?
If a cryptocurrency is considered a security, cryptocurrency issuers and exchanges for that asset must obtain the necessary licenses from securities regulators. However, you will appreciate that obtaining these necessary licenses is not that easy. That's why the cryptocurrency industry is going to great lengths to ensure that sales and developments of cryptocurrencies avoid securities laws.
The main way cryptocurrency issuers try to avoid securities laws is by decentralizing projects. If a cryptocurrency is developed in a way that a securities regulator cannot establish a centralized, coordinated group to determine the value of the token, the chances of the asset being considered a security are greatly reduced. Decentralizing the development of DeFi projects, transferring management to decentralized autonomous organizations (DAOs) and using consensus algorithms such as proof-of-stake prevents the projects from being considered securities.
Are Bitcoin and Ethereum Securities?
US Commodity Futures Trading Commission (CFTC) Chairman Rostin Benham said in an interview at the end of 2022 that he believes Bitcoin and Ethereum should be classified as commodities. Benham said in his statement: “I suggested that Ethereum is a commodity, but Chairman Gensler thinks otherwise.”
According to Benham, although SEC Chairman Gary Gensler is willing to call Bitcoin a commodity, he does not have the same sentiment towards other assets such as Ethereum and XRP.
Many investment and management experts consider Bitcoin as a commodity. Experts see Bitcoin among commodities such as gold and silver and accept it as a commercial good.
NOTE: The investment information, comments and recommendations contained herein are not within the scope of investment consultancy. The content, comments and recommendations contained herein are of a general nature and are not guiding in any way. These recommendations may not suit your financial situation and risk and return preferences.