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Editor鈥檚 note: Mergers & Money is a monthly column by Senior Reporter Chris Metinko that covers dealmaking and the flow of venture capital.

Although crypto historically has tried to shirk some labels鈥攍ike those of聽 鈥渢rend鈥� or 鈥渇ad鈥濃�攖he industry seems ready for one from the U.S. government.

While most people are fixated on the big declines cryptocurrencies have seen during the current 鈥渃rypto winter,鈥� perhaps the most interesting turn in the industry happened last month when the filed an insider trading case against a manager and two others who declared nine digital assets on the exchange platform were securities.

Why does that matter? Because it made what was murky even more opaque in terms of how the U.S. will categorize crypto and which agency will regulate it.

Commodity vs. security

It鈥檚 probably important to have a cursory understanding of the differences between commodities and securities before delving too much further into why it鈥檚 important to crypto.

In layman鈥檚 terms, a security produces return from a common enterprise or company. Commodities are typically a 鈥渂asic good鈥� that can be bought, traded or exchanged鈥攖hink grain, beef or gold. Commodities often are considered stores of value because they hold their value over time鈥攗nlike, say, shares of back in the day, which were securities.

Some crypto assets such as Bitcoin certainly share the traits of a commodity. They are by their very nature designed to be decentralized and therefore do not produce a return from a common enterprise or company. Cryptocurrencies also were created as something that can stand in place of money, like the U.S. dollar, which makes it a store of value.

Those traits have led to crypto being regulated by the 鈥攏ot the SEC.

That position has only seemed to be strengthened by newly proposed bills such as this month鈥檚 and the announced in June, which seek to put new regulations on the growing digital assets space but seemingly would keep the industry under the purview of the Commodity Futures Trading Commission.

So what鈥檚 up with the SEC and Coinbase?

That鈥檚 what makes the SEC charges concerning to the industry. SEC Chair has and offered skepticism about the digital asset market in the past. While agreeing Bitcoin is a commodity, Gensler points out things like initial coin offerings bear more than a passing resemblance to securities since they are attempts to raise capital for a business or project.

Being viewed as a security could change the industry. Commodities are generally considered more lightly regulated, while securities demand greater transparency and increased reporting by companies in that market.

For that reason, the general feeling is it would be a win to keep crypto under the CFTC鈥檚 view.

For its part, Coinbase made clear where it believes it stands regarding the SEC action.

鈥淐oinbase does not list securities on its platform. Period.鈥� wrote Coinbase鈥檚 Chief Legal Officer in a blog after the SEC announced charges.

The SEC action even attracted the attention of CFTC Commissioner Caroline Pham, who tweeted the action was 鈥渁 striking example of 鈥榬egulation by enforcement鈥欌�� by the SEC.

鈥淭he SEC鈥檚 allegations could have broad implications beyond this single case, underscoring how critical and urgent it is that regulators work together,鈥� she added.

Where we are

Where the SEC鈥檚 action and the increased talk this year of crypto and regulations lead is anyone鈥檚 guess. However, it seems likely the discussion of how crypto and digital assets are defined and categorized is only starting.

鈥淚 think this is the beginning of this debate as to how it鈥檒l be regulated,鈥� said William Powers, a partner at Nossaman LLP who has worked with crypto advocacy groups concerning lobbying compliance.

Powers said while crypto regulation bills have been proposed, 鈥檚 on crypto from March asked for a report from all relevant government agencies on the future of money and payment systems鈥攕o the conversation is still very much evolving.

It also is possible crypto may not fit with any definition and needs to be regulated in a different way鈥攕omething many in the industry believe. Even Gensler earlier this year his agency is considering how to share oversight of the industry between the SEC and CFTC.

Although that may make sense, both agencies are overseen by different senate committees, so that may be a difficult road to map.

One thing that is certain is that from investors to founders to anyone else in crypto, nearly everyone would just like to know the rules moving forward鈥攂e it labeled a security or commodity.

Investors, for instance, hate uncertainty. While the crypto venture market has stayed robust this year鈥攚ith more than $10 billion invested so far, according to Crunchbase 鈥攖hose in the market undoubtedly would like answers sooner rather than later.

鈥淭he common theme is people want clear rules,鈥� Powers said. 鈥淭hey want to know what definition applies. They want clarity.鈥�

Further reading:

• Mergers & Money: As Summer Approaches, Emerging Crypto Winter Gets Darker
• Crypto Market Tumult Drops Bitcoin To 18-Month Low
• Crypto Bear Market Here A While
• Mergers & Money: The Instability Of Stablecoins

Illustration: Dom Guzman

To see more of our Web3 coverage, visit Crunchbase鈥檚 Web3 Tracker鈥攁 new site to look at startups, investors and funding news concerning all aspects of Web3, cryptocurrencies and blockchain.