Under federal law, the question of whether crypto is a commodity or a security has a two-part answer: Bitcoin, Ether, and most major cryptocurrencies are commodities, while some other digital assets can be securities depending on how they are offered and sold. That classification decides which federal agency regulates the market, what protections apply to your money, and how your trades are taxed.
Why Bitcoin and Ether Are Commodities
The Commodity Exchange Act defines “commodity” broadly. Alongside familiar goods like wheat and livestock, the statute sweeps in “all other goods and articles” and “all services, rights, and interests” tied to contracts for future delivery.1Office of the Law Revision Counsel. 7 USC 1a Definitions Federal courts have used that catch-all to place major cryptocurrencies inside the definition.
In 2018, the Eastern District of New York ruled in CFTC v. McDonnell that virtual currency qualifies as a commodity “both in economic function and in the language of the statute.” That same year, the District of Massachusetts reached the same conclusion in CFTC v. My Big Coin Pay, Inc., finding the token at issue was a commodity even though no futures market existed for it. That ruling shut down the argument that CFTC jurisdiction depends on active derivatives trading.
The most recent significant ruling came in July 2024, when the Northern District of Illinois granted summary judgment for the CFTC in CFTC v. Ikkurty. The court found that Bitcoin and Ether are commodities within the CFTC’s jurisdiction, noting that courts “roundly recognize” cryptocurrencies as falling within the statutory definition because they are exchanged in a market for a uniform quality and value. The defendants were ordered to disgorge roughly $37 million.
The underlying logic is that these assets behave like interchangeable goods rather than ownership stakes. Bitcoin has no CEO, no board, and no earnings. You buy and sell it on market price, the same way you would gold or crude oil.
When a Digital Asset Becomes a Security
A digital asset crosses into security territory when buyers are counting on someone else’s work to make their investment pay off. The Supreme Court’s Howey test asks four questions to identify an investment contract: Did someone invest money? In a common enterprise? With an expectation of profits? Derived from the efforts of others? If all four are yes, the asset is a security and falls under the SEC’s jurisdiction rather than the CFTC’s.
Securities regulation exists because there is an information gap between company insiders and outside investors. That’s why the SEC requires registration, prospectuses, and ongoing financial reporting. Selling an unregistered security can trigger civil lawsuits, financial penalties, forced refunds, and bans from future capital raising.2U.S. Securities and Exchange Commission. Consequences of Noncompliance Commodity regulation, by contrast, focuses on market integrity and anti-fraud enforcement rather than mandatory corporate disclosures.
The Ripple Case: One Token, Two Answers
The clearest illustration of how context drives classification is SEC v. Ripple Labs. The Southern District of New York found that Ripple’s direct sales of XRP to institutional investors were unregistered securities offerings. Those buyers signed contracts, received lockup provisions, and reasonably expected Ripple to use their capital to increase the token’s value.3United States District Court Southern District of New York. Order in SEC v Ripple Labs Inc
The court reached the opposite result for XRP sold through exchanges to retail buyers. Those “programmatic sales” were blind transactions in which purchasers didn’t know whether their money reached Ripple or another trader. Without a direct link to Ripple’s efforts, the third Howey prong failed.3United States District Court Southern District of New York. Order in SEC v Ripple Labs Inc The case settled in May 2025, with the SEC returning over $75 million held in escrow to Ripple and vacating the injunction, though neither party moved to disturb the summary judgment analysis.4U.S. Securities and Exchange Commission. Statement on the Agencys Settlement with Ripple Labs Inc
The takeaway is that the same token can be treated differently based on how it reached the buyer. A fundraising pitch to investors looks like a security; an anonymous exchange trade often does not.
Where Stablecoins and Staking Fit
Two situations sit outside the neat commodity-or-security frame.
In April 2025, the SEC’s Division of Corporation Finance issued guidance that certain stablecoins pegged one-to-one to the U.S. dollar and backed by low-risk liquid reserves are not securities. Staff concluded these “covered stablecoins” fail the Howey test because buyers use them as digital dollars for payments and value storage, not as investments with an expectation of profit.5U.S. Securities and Exchange Commission. Statement on Stablecoins The guidance excludes algorithmic stablecoins, yield-bearing stablecoins, and those pegged to non-dollar assets, leaving their status unresolved.
In May 2025, the same division clarified that proof-of-stake validation activities are not securities transactions. That applies whether you stake your own tokens directly or use a custodial staking service.6U.S. Securities and Exchange Commission. Providing Security is Not a Security – Division of Corporation Finance Statement on Protocol Staking Earning validation rewards is functionally different from investing money and waiting for a management team to generate returns.
What Commodity Status Actually Gets You
Calling something a commodity doesn’t hand the CFTC power over every trade. The agency’s authority in the spot market where most retail buying and selling happens is limited to bringing enforcement actions against fraud and manipulation.7Commodity Futures Trading Commission. Digital Asset Frauds The anti-manipulation statute makes it illegal to use any deceptive device in connection with a commodity sold in interstate commerce.8Office of the Law Revision Counsel. 7 US Code 9 – Prohibition Regarding Manipulation and False Information
Where the CFTC has full regulatory authority is derivatives: futures, options, and swaps on digital assets. Platforms offering these products must register with the agency and follow its rules. Exchanges can list new crypto derivatives through a self-certification process, filing documentation showing the product complies with the Commodity Exchange Act.9eCFR. 17 CFR 40.2 – Listing Products for Trading by Certification
Leveraged Retail Trades Get Treated as Futures
If a platform lets you buy crypto on margin, that transaction is treated as a futures contract unless the platform delivers the actual digital asset to you within 28 days and gives up all control over it.10Commodity Futures Trading Commission. CFTC Issues Final Interpretive Guidance on Actual Delivery for Digital Assets To qualify for this “actual delivery” exception, you must gain full possession and be able to move the asset freely off the platform. If the platform retains any interest or control after 28 days, the transaction falls under futures regulation, which means the platform needs to register as a futures commission merchant.
Segregation of Customer Funds
Registered futures commission merchants must keep customer money separate from the firm’s own capital. Federal regulations prohibit commingling customer funds with proprietary accounts or using customer money to cover the firm’s own obligations.11eCFR. 17 CFR 1.20 – Futures Customer Funds To Be Segregated and Separately Accounted For The firm must maintain enough segregated funds at all times to cover its obligations to all futures customers. This is the rule that customer funds allegedly violated in the FTX collapse, after which the CFTC obtained a $12.7 billion order for monetary relief.
How the Classification Affects Your Taxes
The IRS treats virtual currency as property, so general tax rules for property transactions apply to every crypto sale, trade, or exchange.12IRS.gov. Notice 2014-21 Sell for more than you paid and you have a taxable gain; sell for less and you have a deductible loss, subject to the usual capital loss limits. Holding period determines whether the gain is short-term or long-term, with assets held longer than a year qualifying for the lower long-term rates.
The 60/40 Rule on Regulated Futures
Commodity classification creates a direct tax advantage on regulated futures contracts. Section 1256 treats gains and losses on these contracts as 60% long-term and 40% short-term, regardless of how long you actually held the position.13IRS.gov. Gains and Losses From Section 1256 Contracts and Straddles Bitcoin futures traded on regulated exchanges like the CME qualify. That split can meaningfully reduce your effective tax rate compared to holding spot crypto for less than a year, when the entire gain would be taxed at ordinary income rates.
New Broker Reporting
Starting with 2025 transactions reported in early 2026, centralized crypto exchanges that qualify as brokers must report your sales to the IRS on the new Form 1099-DA. Cost basis reporting for digital asset transactions applies to sales occurring on or after January 1, 2026.14Internal Revenue Service. Final Regulations and Related IRS Guidance for Reporting by Brokers on Sales and Exchanges of Digital Assets The IRS now requires cost basis tracking on a per-wallet or per-account basis rather than pooling everything together. Even if you don’t receive a 1099-DA, you’re still responsible for reporting every taxable crypto transaction.
What Remains Unsettled
Courts have settled that crypto can be a commodity under existing law. What Congress has not settled is a comprehensive framework assigning clear lanes between the CFTC and SEC. As of mid-2025, lawmakers released a discussion draft building on the Financial Innovation and Technology for the 21st Century Act (FIT21), which passed the House in the prior session but never became law. The draft would formally designate “digital commodities” as a CFTC-regulated category, establish registration for digital commodity exchanges and brokers, and require joint rulemaking between the CFTC and SEC for assets that straddle both categories.
Until legislation like that passes, the framework remains a patchwork of court rulings, enforcement actions, and staff guidance. The CFTC can chase fraud but can’t write comprehensive rules for spot trading. The SEC can bring enforcement actions against tokens it treats as securities but has faced pushback in court. The rules are functional but incomplete, and the specifics could shift once Congress acts.