Legal Positioning of Crypto Assets: The US Court's Recognition of BTC and ETH and Its Impact

1. Introduction

In the wave of the digital economy, Crypto Assets have emerged as a new asset class, with their legal status and regulatory framework being a hot topic of discussion. The anonymity, decentralization, and ease of cross-border circulation of Crypto Assets are fundamentally different from traditional financial assets, posing unprecedented challenges to the existing legal system.

As a global leader in financial regulation, the United States' regulatory attitude and methods towards Crypto Assets have important demonstrative effects on the global market. The ruling in the CFTC v. Ikkurty case is not only a legal qualification of specific Crypto Assets but also an important exploration of the regulatory framework for the Crypto Assets market. Judge Mary Rowland's ruling pointed out that BTC and ETH should be regulated by the CFTC as commodities, a view that has sparked widespread discussion.

However, this ruling is not an isolated event. There have been multiple cases prior that involve the legal status of crypto assets, such as the SEC v. Telegram case, where the SEC viewed certain crypto assets as securities and required compliance with securities laws. These cases collectively form the framework of U.S. courts' regulatory logic regarding crypto assets, reflecting the cautious attitude and innovative thinking of U.S. courts in the face of emerging financial instruments.

This article will delve into the legal positioning of Crypto Assets such as BTC and ETH by U.S. courts, exploring the underlying legal logic and regulatory concepts. By examining the CFTC v. Ikkurty case and other relevant precedents, it reveals the considerations of U.S. courts in the regulation of Crypto Assets, including the functionality of Crypto Assets, trading methods, and the behavior of market participants. At the same time, from the multidisciplinary perspectives of economics, finance, and law, it will provide a comprehensive assessment of the commodity attributes of Crypto Assets, offering thorough reflections on the legal regulation of Crypto Assets.

Based on this, this article will also conduct a prospective analysis of the potential impacts of Crypto Assets regulation, including its effects on market participants, financial innovation, and the global financial regulatory landscape. Finally, by combining an in-depth interpretation of existing case law and theoretical analysis, it will present viewpoints on the legal positioning of Crypto Assets, providing references for the healthy development and effective regulation of Crypto Assets.

2. Background of the CFTC v. Ikkurty Case and Perspectives of the Parties

2.1 Case Background, Facts

Sam Ikkurty, through his founded Ikkurty Capital, claims to be a "Crypto Assets hedge fund" and promises substantial returns for investors. Ikkurty recruits investors through online platforms and trading exhibitions, claiming to provide a stable return of 15% per year. However, investigations reveal that Ikkurty has not provided the promised net returns to investors, but instead operates in a manner similar to a Ponzi scheme, using new investor funds to pay early investors.

On July 3, 2024, Judge Mary Rowland of the U.S. District Court for the Northern District of Illinois issued a summary judgment fully supporting the CFTC's complaint. The ruling found that Ikkurty and his company violated the Commodity Exchange Act (CEA) and related regulations of the Commodity Futures Trading Commission (CFTC), including multiple illegal activities such as operating without registration. The court also pointed out that, in addition to Bitcoin and Ethereum, the two crypto assets OHM and Klima also meet the definition of commodities and fall under the jurisdiction of the CFTC. The CFTC seeks compensation for investors, restitution of illegal gains, civil penalties, permanent trading and registration bans, as well as permanent injunctions against Ikkurty and his company for future violations of the CEA and CFTC regulations. The ruling requires Ikkurty and his company to pay over $83 million in damages and $36 million in restitution of illegal gains. The court also found that the defendants improperly diverted funds through carbon offset programs.

Ikkurty expressed its intention to appeal to the U.S. Supreme Court on social media and initiated a fundraising campaign on its website to raise the necessary funds for the appeal.

2.2 CFTC v. Ikkurty Overview of Views from All Parties

The CFTC has accused Ikkurty and his company of illegally raising over $44 million in funds without proper registration, investing in digital assets and other instruments, and operating an illegal commodity pool. The CFTC claims that Bitcoin, Ethereum, OHM, and Klima are considered "commodities", providing legal basis and precedents to prove that these crypto assets fall under the broad definition of commodities. The CFTC accuses Ikkurty and his company of providing false information and misleading statements to defraud investors, such as exaggerating the fund's historical performance and investment strategies. The CFTC, based on the anti-fraud provisions of the CEA and relevant regulations and judicial interpretations, seeks a summary judgment from the court and is pursuing compensation and the forfeiture of illegal proceeds.

Ikkurty argues that it does not trade goods covered by the CEA, but rather involves "packaging Bitcoin" and other Crypto Assets, which should not be regulated by the CFTC. Ikkurty questions the CFTC's jurisdiction over Crypto Assets, believing that the CFTC's claims exceed its statutory authority. Ikkurty contends that it has not engaged in actual commodity trading as a CPO and therefore should not be considered a CPO. Ikkurty opposes the CFTC's demands for compensation and forfeiture of illegal gains.

The court confirmed the CFTC's position, stating that the involved crypto assets fall under the definition of commodities as defined by the CEA. The court found that the evidence provided by the CFTC was sufficient to prove that Ikkurty and his company engaged in fraudulent activities. The court ruled that Ikkurty and his company, acting as CPO, failed to register with the CFTC, in violation of the CEA regulations. The court granted the CFTC a summary judgment, ordering Ikkurty and his company to pay restitution and forfeit illegal gains.

In this case, the court's summary judgment order not only confirmed the CFTC's jurisdiction over Ethereum as a commodity but also explicitly stated that cryptocurrencies such as Bitcoin, Ethereum, OHM, and Klima fall within the CFTC's jurisdiction. This ruling provides legal support for the CFTC's anti-fraud actions in the crypto assets market and may influence future court rulings and regulatory approaches.

3. The Court's Viewpoints, Logic, and Analysis in Relevant Cases

3.1 Related Cases

3.1.1 CFTC v. McDonnell

In 2018, Judge Jack B. Weinstein ruled that Bitcoin is a commodity regulated by the CFTC. The case involved allegations of fraud related to virtual currencies, and the judge affirmed the CFTC's regulatory authority over virtual currencies. Patrick McDonnell and his company CabbageTech Corp. d/b/a Coin Drop Markets were accused of operating a fraudulent virtual currency trading scheme. The court ordered the defendants to pay over 1.1 million dollars in restitution and civil fines, and prohibited them from engaging in further trading and registering violations.

3.1.2 CFTC v. My BigCoin

In 2018, the CFTC filed a lawsuit against My Big Coin Pay, Inc. and its founders, accusing them of fraudulent sales through an unregistered exchange. Judge Rya W. Zobel of the Massachusetts District Court ruled that virtual currencies are commodities under the Commodity Exchange Act. The court found that the CFTC has the authority to prosecute fraud involving virtual currencies and confirmed that MBC qualifies as a "commodity" under the Commodity Exchange Act.

3.1.3 Uniswap class action case

In 2023, Judge Katherine Polk Failla of the Southern District of New York explicitly stated that Bitcoin and Ethereum are "crypto assets" and not securities while dismissing a class action lawsuit against Uniswap. The judge argued that Uniswap's decentralized nature prevents it from controlling the tokens or interactions listed on the platform. This ruling holds significant implications for DeFi projects, indicating that protocol developers should not be held liable for third-party misconduct.

Overall, there are differences in the classification and regulation of BTC and ETH among the states in the United States. Through these case analyses, we can conclude that U.S. courts tend to view Crypto Assets as commodities rather than securities, and this position is significant for the trading, regulation, and market innovation of Crypto Assets.

3.2 Regulatory Requirements

3.2.1 The Role of the SEC and CFTC

The SEC is primarily responsible for regulating the securities market, including stocks, bonds, and other investment contracts. In the field of Crypto Assets, the SEC usually considers certain types of Crypto Assets as securities and regulates them under the Securities Act. The SEC's regulatory framework is mainly based on the Howey test in the Securities Act, which is used to determine whether a certain trading instrument constitutes an "investment contract" and is therefore regarded as a security.

The CFTC tends to regard Crypto Assets as commodities, regulating them under the Commodity Exchange Act (CEA). The CFTC's regulation focuses on preventing market manipulation and fraud, ensuring fair and transparent markets. The CFTC's regulatory framework requires Crypto Assets exchanges to comply with specific registration and compliance requirements, including capital, record-keeping, and risk management.

3.2.2 The new impact of the FIT21 Act on Crypto Assets classification

H.R.4763 Bill, officially titled the "Financial Innovation and Technology for the 21st Century Act" (, abbreviated as FIT21. The bill was passed by the House of Representatives on May 22, 2024, marking an important step for the United States in the regulation of digital currency and blockchain technology.

The FIT21 Act defines digital assets and lists exclusions. The Act proposes new classification criteria, dividing digital assets into three main categories: restricted digital assets, digital commodities, and licensed payment stablecoins. This helps the SEC and CFTC clarify their areas of responsibility, regulating restricted digital assets and digital commodities accordingly.

The FIT21 Act establishes a legal framework for the secondary market trading of digital assets, imposing strict registration and compliance requirements on digital asset exchanges and intermediaries. The Act also enhances investor protection by requiring relevant entities to provide clear and accurate information to clients, safeguard client assets, and adhere to high operational standards.

In terms of issuance regulation, the FIT21 Act provides a registration exemption for eligible digital asset issuers, aiming to encourage innovation while not sacrificing the fundamental principles of regulation.

Although the FIT21 Act was passed by the House of Representatives in May 2023, it faced opposition from President Joe Biden's policy statement. The final outcome of the bill is still pending Senate review and presidential approval. Although it has not yet come into effect, the passage of the FIT21 Act is seen as a watershed moment for the U.S. digital asset ecosystem, providing necessary consumer protection and regulatory certainty for the innovation and development of digital assets.

Overall, the differing regulatory positions of the SEC and CFTC have had a significant impact on the crypto assets market. The SEC's securities law regulatory framework requires cryptocurrency issuers to comply with strict disclosure and registration requirements, which may limit the issuance and circulation of certain projects. The CFTC's commodity law regulatory framework places more emphasis on market conduct standards, providing greater flexibility for cryptocurrency trading. The introduction and passage of the FIT21 Act have provided a new legal basis for cryptocurrency regulation, with the potential to unify the regulatory responsibilities of the SEC and CFTC, offering a clearer legal environment for innovation and trading in digital assets.