The Commodity Futures Trading Commission (CFTC) has broad authority to regulate cryptocurrencies, but it wields its power carefully.
It was in 2015 that the US Commodity Futures Trading Commission (CFTC) first put its foot down on the unregistered bitcoin options trading platform Coinflip Inc. This event stirred up many debates in the crypto community about the legal nature of bitcoin and other virtual currencies, as well as CFTCs jurisdictional scope in the crypto realm.
The CFTC’s mission is to foster open, transparent, competitive and financially sound derivative trading markets, and prevent abusive practices, fraud and manipulation regarding derivatives and other financial products subject to the Commodity Exchange Act (CEA).
Even though the CFTC has limited regulatory oversight over virtual currency spot markets (i.e cash markets) that don’t utilize margin, leverage or financing, it has full authority to engage in anti-fraud and anti-manipulation enforcement actions on commodities markets where virtual currencies are traded as a commodity in interstate commerce or traded for future rather than immediate delivery.
Virtual currencies as commodities
According to the CFTC’s interpretation, the term “virtual currency” incorporates any digital representation of value (a “digital asset”) that functions as a medium of exchange, as well as any other digital unit of account that acts as a form of currency regardless of its format (tokens, coins, or digital units distributed through smart contacts).
The Commission, however, emphasizes that (given the novel and evolving nature of the commodity and the underlying DLT) this “definition” should not be taken as definitive, nor arbitrary. As of September 2015, the CFTC maintains that “Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities, and are therefore subject as a commodity to applicable provisions of the Act [CEA] and Regulations.”
Be careful though — mistaking “other virtual currencies” with “all virtual currencies” in the aforementioned definition is plain wrong; whether a particular crypto token is regarded as a security or a commodity depends on the encompassing facts and circumstances.
It must be noted that the CFTC’s official position on virtual currencies is not contradictory to SEC’s reiterations that most ICOs classify as securities and fall under SEC jurisdiction.
Both the CFTC and the SEC will look past the form and examine the substance on a case-by-case basis, and prosecute violations of the federal securities or commodities laws accordingl