The problem is: it often is both.
Remarks yesterday by SEC chair Gensler called for Congress to pass legislation making clearer the regulatory powers of the SEC over certain forms of crypto-currency; to date, the SEC has regulated crypto by suing the issuers, which is not, dare I say, best practice.
Many crypto offerings have looked like securities, as they were designed and marketed to provide a thing one could sell and trade at a profit. Some offerings were more cleverly structured. It is beyond our scope to parse the litigation history, but we can play with the anomalies here:
Clearly, people pay for things with bitcoin and other pseudo-currencies. Just like with dollars. Just like with checks that translate to dollars and are so denominated. But crypto is denominated by the market and so while a check for a dollar always gets you a dollar, a bitcoin unit when issued for a dollar can get you $1.50– or, alas, 75 cents. SO it is money and an investment.
Let’s say I go out and buy a hundred Euros worth (I am making this up) $125. When I spend or sell those Euros, I may get $128 of credit, or $1.10 of credit. But buying Euros, in the form of Euros, is not a securities transaction, clearly. (What if I am an investment fund and I buy 2.3 billion Euros, in specie, on the assumption that Euros today are underpriced?)
The regulatory impetus is the use of the cryptos: if people use them as an investment vehicle then the SEC wants to and should regulate them. But lots of fine lines need to be drawn. (I am reminded of the question as to whether a promissory note is an SEC-regulated security. The law specifically and categorically says that a note IS a security. But the courts and SEC have made clear that only some notes are securities: your mortgage on your house is not a security when you give it to your bank lender, nor is your IOU to your brother when he lends you a thousand dollars.
So today’s reportage quotes Gensler as asserting that a majority of digital assets are under the federal securities laws because their USAGE is speculative. He calls for Congressional power to regulate trading and lending cryptos, particularly on DeFi (decentralized finance) platforms, and seeks to have such platforms register with the SEC much as an exchange. At the same time, he has just expressed an invitation to register with the SEC an ETF fund dealing in bitcoin trading.
Our grandchildren will open their box of antiquities to marvel at monetary coins and paper; they will do everything financial by electronic credit transfers authorized by fingerprint or iris scan. Those systems of payment may be by either governmental or private enterprise systems. We are at the beginning of a journey, the exact twists and turns of which are as unpredictable as the current SEC reaction to cryptos; but the end-point of all this is inevitable.