FameEX Hot Topics | 90% of Ethereum Supply Moved off Exchanges Due to Regulatory Uncertainty Regarding ETH's Classification as a Security or Commodity

The debate around the regulatory classification of Ethereum has been ongoing for some time now. The Commodity Futures and Trading Commission (CFTC) charged Binance on March 27 for noncompliance with federal laws and claimed that Ethereum is a commodity in its lawsuit. This announcement followed the Securities and Exchange Commission's (SEC) shutdown of Kraken's crypto-staking service, where ETH was classified as a security.
The lack of regulatory clarity in the industry has resulted in conflicting views on whether Ethereum should be considered a security or a commodity. Earlier this year, the SEC Chair Gary Gensler reiterated his agency's position, and the CFTC Chair agreed that Ethereum should be classified as a commodity.

According to their definitions, a "security" is a financial asset or instrument that can be bought, sold, or traded, such as stocks and bonds. In contrast, a "commodity" is a physical good that is traded on exchanges, and its value is determined by supply and demand. Since Ethereum's staking feature is a fundamental part of the network, it aligns more with the security category than the commodity category. On the other hand, Bitcoin, which is similar to gold on a financial level, is closer to being a commodity than a security. If Ethereum is classified as a security, it will impact the exchanges planning to list it. These exchanges and platforms will need to register as a "securities" broker-dealer with the SEC or delist ETH to avoid selling securities illegally. This will affect not only centralized exchanges but also decentralized exchanges like SushiSwap.

The regulatory uncertainty surrounding Ethereum has resulted in a loss of confidence in exchanges. On March 27, the total Ethereum supply on exchanges fell to 10.3% as users shifted their ETH to self-custody wallets or staked it. This is the lowest the supply has been since the cryptocurrency's launch in 2015. The decline in confidence in exchanges has not been restored following the FTX collapse, resulting in exchanges now holding less than 12.5 million ETH ($25.4 billion).

In conclusion, the regulatory classification of Ethereum has significant implications, and the lack of regulatory clarity is causing uncertainty and decreasing confidence in exchanges. Until there is a clear resolution, Ethereum holders are likely to continue shifting their coins to self-custody wallets or staking them.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.