Does it matter that Illinois in the United States has classified BTC and ETH as digital commodities? What is its actual regulatory policy like?
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Does it matter that Illinois in the United States has classified BTC and ETH as digital commodities? What is its actual regulatory policy like?
This ruling applies only to Illinois and does not represent the position of other states or the federal government.
Navigating Web3 tides with focused insightsBy Aiying Ai
Yesterday, according to Fox Business reporter Eleanor Terrett, Rostin Behnam, Chairman of the U.S. Commodity Futures Trading Commission (CFTC), stated that an Illinois state court has confirmed that BTC and ETH are digital commodities under the Commodity Exchange Act. However, this ruling applies only to Illinois and does not represent the stance of other states or the federal government. So don’t get overly excited—this isn’t federal legislation, and there’s no need to hype it up as a 'revolutionary milestone' every time. After all, the United States consists of 50 states, each with its own government system and legal framework. In addition, there is one federal district—the District of Columbia (Washington, D.C.). Beyond these 50 states and the federal district, the U.S. also holds several overseas territories such as Puerto Rico, Guam, the U.S. Virgin Islands, the Northern Mariana Islands, and American Samoa, which enjoy varying degrees of autonomy in certain areas.
I. Which States Have Explicitly Classified BTC and ETH as Digital Commodities?
U.S. district courts have ruled in multiple cases that Bitcoin (BTC) and Ethereum (ETH) qualify as commodities. Below are key judicial precedents:
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CFTC v. McDonnell: In 2018, Judge Jack B. Weinstein of the U.S. District Court for the Eastern District of New York ruled that Bitcoin qualifies as a commodity regulated by the Commodity Futures Trading Commission (CFTC). The case involved fraud allegations related to virtual currency, and the judge determined that the CFTC has regulatory authority over virtual currencies like Bitcoin.
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CFTC v. My BigCoin: In 2018, Judge Rya W. Zobel of the U.S. District Court for the District of Massachusetts ruled that virtual currencies fall under the definition of "commodities" in the Commodity Exchange Act. The case concerned fraudulent activities involving My BigCoin, and the court held that virtual currencies meet the broad statutory definition of commodities.
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Uniswap Class Action Lawsuit: In 2023, Judge Katherine Polk Failla of the U.S. District Court for the Southern District of New York dismissed a class-action lawsuit against Uniswap, explicitly stating that Bitcoin and Ethereum are “crypto commodities” rather than securities.
To date, no U.S. state has explicitly classified Bitcoin (BTC) or Ethereum (ETH) as securities. However, the U.S. Securities and Exchange Commission (SEC) has repeatedly expressed the view that many cryptocurrencies should be treated as securities. SEC Chair Gary Gensler has stated that, aside from Bitcoin, most other cryptocurrencies—including Ethereum (ETH)—may meet the definition of a security.
The SEC's position is reflected in the following actions:
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Ripple (XRP) Case: In December 2020, the SEC filed a lawsuit against Ripple Labs, alleging that its sale of XRP constituted an unregistered securities offering. While focused on XRP, this case reflects the SEC’s broader regulatory stance toward most cryptocurrencies.
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SEC's Lawsuit Against Coinbase: In recent enforcement actions, the SEC sued Coinbase, claiming that certain cryptocurrencies listed on its platform are unregistered securities. This litigation involves multiple digital assets and further underscores the SEC’s strict approach to regulating crypto assets.
The SEC’s stance on cryptocurrencies typically relies on the application of the Howey Test under the Securities Act. The Howey Test is a legal standard used to determine whether a transaction constitutes an investment contract—and thus a security. Under this test, if an investment involves money placed into a common enterprise with the expectation of profit primarily derived from the efforts of others, it may be classified as a security.
Although the SEC maintains a stringent regulatory posture toward cryptocurrencies, no state law to date has explicitly classified Bitcoin or Ethereum as securities. Earlier this year, in May, the House of Representatives passed the so-called FIT21 Act (Financial Innovation and Technology for the 21st Century Act). If enacted, this bill would establish a clear regulatory framework for cryptocurrencies in the U.S., enable blockchain projects to launch safely within the country, clarify jurisdictional responsibilities between the SEC and CFTC, and end the ongoing regulatory conflict between the two agencies that has burdened project developers. Overall, the bill received support from 71 Democrats and 208 Republicans, while 3 Republicans and 133 Democrats voted against it. President Joe Biden issued a policy statement opposing the bill, though he did not indicate whether he would veto it. The bill now moves to the Senate for consideration and would ultimately require Biden’s approval; timing remains uncertain. For more details, refer to prior articles by Aiying Ai:
II. Illinois State Cryptocurrency Regulatory Policy
Aiying Ai has reviewed Illinois’ regulatory landscape, highlighting the following key points:
1. Licensing Requirements
Illinois is moving toward establishing a cryptocurrency licensing regime similar to New York’s BitLicense. This framework would require companies operating in Illinois to obtain a specific state license, ensuring compliance with rigorous security and regulatory standards. Key requirements include:
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Background Checks: Comprehensive background checks on both the company and its executives to ensure they have not engaged in illegal activities.
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Financial Requirements: Companies must demonstrate sufficient financial resources to sustain operations and fulfill customer obligations.
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Compliance Programs: Firms must implement comprehensive compliance programs, including anti-money laundering (AML) and know-your-customer (KYC) policies.
2. Tax Policy
Illinois has clear guidelines regarding the taxation of cryptocurrencies. Crypto assets are treated as property, meaning capital gains taxes apply upon disposal. Specifically:
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Capital Gains Tax: Taxes must be paid on profits realized from buying and selling cryptocurrencies, similar to stock transactions.
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Record Keeping: Individuals and businesses must maintain detailed records of all transactions to accurately report tax liabilities.
3. Consumer Protection
Illinois places strong emphasis on consumer protection, particularly in the cryptocurrency sector. To this end, the state has implemented the following measures:
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Transparency Requirements: Crypto firms must provide customers with clear terms of service and fee structures to prevent fraudulent practices.
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Complaint Mechanism: A dedicated complaint system allows consumers to report misconduct or unfair treatment directly to state authorities.
Currently, mining company Sangha Systems has established a large-scale cryptocurrency mining facility in Illinois and plans to power it through solar panel arrays. Bitcoin ATMs: CoinFlip, headquartered in Chicago, Illinois, operates over 2,500 Bitcoin ATMs across 47 states. Additionally, cryptocurrency exchanges such as FTX.US have already set up offices in Chicago.
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