"CFTC Asserts Jurisdiction in Bitcoin Markets"

The Commodity Futures Trading Commission (CFTC) recently took a series of actions confirming views expressed late last year by CFTC Chairman Timothy Massad that “[d]erivatives contracts based on a virtual currency represent one area within [the CFTC’s] responsibilities.”1

With very limited exceptions, the Commodity Exchange Act (CEA) grants the CFTC exclusive jurisdiction over the trading of futures, options and swaps on “commodities.” The CEA contains an expansive definition of “commodity” to include “goods and articles … and all services, rights and interests … .”2 On September 17, 2015, the CFTC issued a settlement order (the CFTC Order) in an enforcement action finding for the first time that “Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.”3

In what the CFTC described as its first action against an unregistered Bitcoin options trading platform, the CFTC charged Coinflip, Inc. and its founder and chief executive officer with failures to comply with the CEA or CFTC regulations for operating a facility for trading or processing “commodity options.” Among other findings, the CFTC Order found that from at least March 2014 through July 2014, Coinflip operated a facility for the trading of swaps without registering as a swap execution facility (SEF)4 or a designated contract market.5

Albeit in footnotes, but perhaps most significantly, the Coinflip case put the CFTC on record as concluding that Bitcoin, while a commodity, is not a currency.6 In summarizing the facts of the case, the CFTC explained that Bitcoin is “distinct from ‘real currencies’” of the United States or another country.7 In addition, the CFTC Order in the Coinflip settlement specifically noted that the Bitcoin options were not eligible for the CFTC’s “trade option exemption” in CFTC Rule 32.3.Originally appeared at: http://www.jdsupra.com/legalnews/cftc-asserts-jurisdiction-in-bitcoin-49992/