New investors and incumbents to the digital asset ecosystem often incorrectly use the words “Bitcoin” and “Crypto” interchangeably. However, the two terms could not be more dissimilar and we’d like to detail the differences given how important we believe it to be to correctly differentiate between the two terms.
Why ‘Bitcoin’ and Not ‘Crypto’?
Following the impressive returns recorded by Bitcoin since its early years (up ~4000x since inception), many market participants have attempted to imitate and even “improve” upon Bitcoin’s perceived ‘flaws’. This resulted in a race between a variety of developers to create numerous clones of Bitcoin, many of which attempted to lure the community’s attention and hashrate away from Bitcoin.
While Bitcoin was born as a direct response by Satoshi to the centralized devaluation of fiat currency, all subsequent blockchains that came after are widely considered to either be for the purpose of mere speculation or to potentially solve an entirely different use case.
Bitcoin maximalists, a group of enthusiasts who believe Bitcoin is the only real digital asset, distance themselves from the broader term "crypto." They argue that the term has become synonymous with scams and get-rich-quick schemes, far removed from the original vision of decentralized digital cash that was conceived and detailed in the Bitcoin whitepaper.
What is the Regulators’ Stance?
The US Securities and Exchange Commission (SEC) has taken a proactive stance to protect consumers from unscrupulous players in the industry. Their main strategy is to target exchanges, or digital marketplaces, where these speculative instruments are traded predominantly by retail investors.
In June 2023, the SEC sued Binance and Coinbase, two of the world's largest crypto exchanges, alleging that they facilitated the sale of unregistered securities.
The SEC's classification of most cryptos as securities hinges on the Howey test, a 1946 Supreme Court precedent that defines an investment contract as a security if it meets three conditions: (1) investment of money, (2) common enterprise, (3) expectation of profits, and (4) the efforts of others.
In the case of Bitcoin, the SEC seems to recognize its unique position as decentralized cryptocurrency. With no involvement from a central authority, Bitcoin does not fit the Howey test.
“Everything other than bitcoin, you can find a website, you can find a group of entrepreneurs, they might set up their legal entities in a tax haven offshore, they might have a foundation, they might lawyer it up to try to arbitrage and make it hard jurisdictionally or so forth. They might drop their tokens overseas at first and contend or pretend that it’s going to take six months before they come back to the U.S., but at the core, these tokens are securities because there’s a group in the middle and the public is anticipating profits based on that group.” - Gary Gensler
According to SEC Chair Gary Gensler, everything other than Bitcoin is a security because there is a team of entrepreneurs behind these tokens, and investors anticipate profits based on their efforts. His predecessor, Jay Clayton, also echoed this stance, calling Bitcoin a "replacement for sovereign currencies."
“We live in a world where Amazon stock and U.S. treasuries are already digital. So many of the bills, literally, you could take the $24 trillion treasury market, put it on a blockchain ledger, and take it outside of the current regime” - Gary Gensler
The Commodity Futures Trading Commission (CFTC), another US financial regulator, has taken a slightly different approach, classifying Ether, Litecoin, and Tether as commodities rather than securities. However, the SEC's stance on Bitcoin, and its emphasis on the Howey test, suggests that it views Bitcoin as a unique and potentially transformative asset.
It is therefore important to note that there is a clear distinction between Bitcoin and "crypto" also from a regulatory point of view.
Although it may seem trivial to some, the implications are more than relevant.
The status of "digital commodity" has allowed Bitcoin to enter mainstream finance with an instrument such as the ETF, something that 99.9% of other existing digital assets will probably never be allowed to do.
SEC Chairman Gary Gensler even made a point of specifying it in his statement after the long-awaited approval of the spot Bitcoin ETFs:
“Importantly, today’s Commission action is cabined to ETPs holding one non-security commodity, bitcoin. It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities. Nor does the approval signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws. As I’ve said in the past, and without prejudging any one crypto asset, the vast majority of crypto assets are investment contracts and thus subject to the federal securities laws.”
In summary, there are two fundamental points that differentiate Bitcoin from “Crypto”.
The first centers around the ethical view that Bitcoin was created to leverage the blockchain in order to provide an equitable incentive mechanism for the broader market to support an ecosystem that enables anyone to securely store and transact their wealth, free from manipulation by centralized decision makers.
The second is the fact that the SEC's actions (to date) make it clear that Bitcoin’s adoption and broader use as a store of value entitles it to favorable treatment relative to the broader “crypto” markets.
This is the reason we have made the decision to focus exclusively on Bitcoin and align with this ethos of providing the same benefits and value to as many of our customers as possible.