Bitcoin is a complicated asset, but nothing appears more complicated about bitcoin than what category it should fall into.

So, What IS Bitcoin, Exactly?

Everywhere you look, attorneys, regulators and other members of the crypto and financial spectrums are wondering how bitcoin should be classified. Is it a currency? It is in the sense that it can be used to purchase goods and services. The trouble is that this practice is not mainstream enough yet to really get the “currency” aspect of bitcoin up and running.

Many others label it as a commodity, the way one would with oil or gold. Many monetary products, i.e. futures, have emerged over the past few years based on bitcoin, which means that it can be sold in cash markets.

Still, there are some out there that claim the digital asset is a security. This is not based on anything other than the idea that some cryptocurrencies have been shelled out via initial coin offerings (ICOs) when they first came to prominence. However, bitcoin’s origin story is quite different.

Still, this debate has raged on for years, and likely will continue to permeate the crypto industry for a long time to come. In addition, the argument is likely to have heavy bearings on how the currency is used and how it will be regulated.

Technically, bitcoin has already been classified as a commodity by the Commodity Futures Trading Commission (CFTC), though if this were entirely accurate, regulatory tactics would be a lot more straightforward, and we’d already have solid means of monitoring and governing digital assets in place.

However, Benjamin Tsai – president of Wave Financial in Los Angeles – says things are far more complicated than they seem. He states:

When we’re going through the security process, we spend a lot of fees on lawyers to make sure we’re in compliance. It’s a lot more of a pain in the butt.

Other individuals, like Deeksha Gupta – assistant professor of finance at Carnegie Mellon University – don’t see what all the confusion is about. Gupta says that one of the biggest advantages of bitcoin is that users can gain liquidity, which automatically makes it fall into the commodities category. He explains:

The commodities markets [analogy] is very fitting. One of the biggest similarities is that they are also driven by people wanting to be able to get liquidity.

Are People Overthinking BTC?

According to Gupta, bitcoin has found its home with the CFTC and it should stay there. Still, others claim otherwise, and believe that all cryptocurrencies – including BTC – should be labeled as securities. Nic Niedermowwe, CEO of Prime Factor Capital in London, mentions:

If they were somehow classified as financial instruments, then that would have the knock-on effect that they would be eligible for retail funds.

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