D.L. White

The CLARITY Act is intended to settle a problem that has dogged U.S. crypto regulation for years: what exactly are these things, and which regulator gets to oversee them? Its answer is to divide digital assets into legal categories, principally securities and “digital commodities,” and assign jurisdiction accordingly.

As a practical matter, some version of that exercise is probably unavoidable. Congress has inherited thousands of radically different assets, years of regulatory improvisation, and statutes written long before distributed ledgers existed.

But Bitcoin exposes a deeper problem with the categories themselves.

Bitcoin Is Property

Bitcoin is not a security by any coherent economic description of the asset. There is no issuer, no enterprise in which the holder acquires an interest, no debt, no contractual claim, no promised return, and no party whose obligation gives the asset its value.

Calling Bitcoin a commodity gets closer, but it remains an approximation.

The more coherent description is simpler:

Bitcoin is property.

That is not an especially exotic claim. Law has long treated bearer assets as property, including financial instruments such as bearer bonds. A bearer bond can be possessed, transferred, stolen, inherited, or pledged. What makes it a security is not that it is bearer property. It is that the instrument embodies a claim against an issuer.

Bitcoin resembles a bearer asset without that second layer.

There is no corresponding liability. No issuer owes principal or interest. No company promises redemption. No institution stands behind the asset. Possessing bitcoin does not create a claim against anyone.

Control of the relevant keys allows the holder to satisfy the conditions necessary to spend particular outputs. That control supports an unusually strong right of exclusion, but nothing about the asset itself creates a financial relationship with another party.

That is why property is the better starting point.

The commodity analogy has intuitive appeal. Bitcoin is scarce, trades openly at market prices, and its units are interchangeable at the protocol level, although not perfectly fungible in practice because their transaction histories remain observable.

But bitcoin is not wheat, copper, oil, or gold. Those are things over which property rights are asserted. Bitcoin is itself better understood through the bundle of control, exclusion, and transfer that gives property its practical meaning.

The Problem With “Crypto”

The distinction becomes more important when Bitcoin is placed inside the broader category of “crypto.”

Ethereum, XRP, Solana, and thousands of other tokens may ultimately be assigned whatever statutory category Congress finds useful. Some may be called digital commodities. Some may be securities. Some may fall into different categories depending on how they are issued, sold, or governed.

But a shared regulatory label should not obscure the underlying differences.

Most cryptoassets emerged from identifiable projects. They have founders, foundations, companies, treasuries, premines, token allocations, governance mechanisms, development roadmaps, or some combination of them. Their operation and value may depend substantially on identifiable people and institutions making decisions about the network.

Bitcoin does not share that structure.

There is no issuer obligated to perform. There is no treasury controlling its monetary policy. There is no foundation capable of altering the rights attached to bitcoin. There is no company whose assets, revenues, or managerial performance sit behind it.

Bitcoin and a token issued by a foundation may both appear on distributed ledgers. They may both trade on the same exchange and display a dollar price.

That does not make them the same kind of thing.

“Digital commodity” may therefore be a workable statutory category while simultaneously concealing the distinction that matters most.

For Bitcoin, the starting point remains property.

Where Finance Begins

Once viewed that way, the regulatory question also changes.

If I own bitcoin, you want it, and I transfer it to you in exchange for dollars, the transaction is not especially exotic. Fraud law still applies. Contract law still applies. Tax law still applies. Sanctions and anti-money-laundering rules may apply depending on the parties and circumstances.

The familiar financial risks appear when an intermediary inserts itself between the owner and the asset.

If an exchange says it holds bitcoin for me, I must trust that it actually does. If it lends that bitcoin, pledges it elsewhere, pools it with other customer assets, or uses it to support its own liabilities, I am no longer dealing only with property. I am dealing with an institution and a set of promises.

The same is true of products built on top of Bitcoin. A futures contract is not bitcoin. An option is not bitcoin. A leveraged position is not bitcoin. An ETF share is not bitcoin. A promise to repay bitcoin plus interest is not bitcoin.

They are financial claims constructed around the underlying property.

And those claims recreate familiar problems: counterparty exposure, leverage, rehypothecation, inadequate reserves, conflicts of interest, liquidation cascades, opacity, and potentially systemic contagion.

Bitcoin itself has no balance sheet. It cannot become insolvent. It cannot rehypothecate customer assets, conceal liabilities, or promise more bitcoin than it possesses.

Institutions can.

What CLARITY Gets Right

To its credit, CLARITY already recognizes much of this. Its rules around custody, customer-asset segregation, exchanges, and intermediaries are directed largely at the institutions operating around digital assets.

So the disagreement is not necessarily over whether those activities deserve oversight.

It is over what exactly sits underneath them.

If Bitcoin is property, then custody, leverage, derivatives, and exchange intermediation do not require a novel theory of “digital commodity” risk. They are familiar financial relationships built around an unusual form of property.

Calling Bitcoin a “digital commodity” may solve an administrative problem for Congress. Putting Bitcoin, ETH, XRP, and other tokens inside the same statutory bucket may solve another.

Neither classification tells us what Bitcoin is.

The Wrong Box

The more useful distinction is between the property and the claims built on top of it.

Bitcoin is the property.

Exchanges, custodians, lenders, ETFs, futures, options, and leveraged positions are the financialization of that property.

Those are not the same thing.

And that distinction is clearer than the box Congress has chosen to put Bitcoin in.