Bitcoin According to Regulators: Money, Currency, Property, and Now a Commodity
Bitcoin is now officially a commodity according to U.S. regulators, Bloomberg Business reports. The Commodity Futures Trading Commission (CFTC) announced on Thursday that it had filed and settled charges against a Bitcoin exchange for facilitating the trading of option contracts on its platform.
“In this order, the CFTC for the first time finds that Bitcoin and other virtual currencies are properly defined as commodities,” notes the CFTC press release.
The U.S. Commodity Futures Trading Commission is an independent agency of the U.S. government created in 1974, which regulates futures and option markets that are subject to the Commodity Exchange Act. By this action, the CFTC asserts its authority to provide oversight of the trading of cryptocurrency futures and options, which will now be subject to the agency’s regulations.
“While there is a lot of excitement surrounding bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets,” said CFTC’s Director of Enforcement Aitan Goelman.
The CFTC action targets Bitcoin exchange Coinflip, which operated the Bitcoin financial derivatives market Derivabit, and its chief executive officer Francisco Riordan, for “conducting activity related to commodity options transactions without complying with the Commodity Exchange Act (CEA) and CFTC Regulations, specifically, by operating a facility for the trading or processing of commodity options without complying with the CEA or CFTC Regulations otherwise applicable to swaps or conducting the activity pursuant to the CFTC’s exemption for trade options.”
The website derivabit.com hasn’t been active since mid-2014. A September 2014 site snapshot on Internet Archive advertised Derivabit services as “Financial derivatives to manage exposure to Bitcoin volatility – Buy & sell option contracts to control your Bitcoin risk” and listed ongoing trades. Later snapshots just said “Not Currently Accepting Customers,” and the domain was announced for sale on Bitcointalk with the source code in January 2015. More information on Derivabit services is available in this discussion thread on Hacker News.
The CFTC press release notes that Coinflip and Riordan cooperated with the Division of Enforcement’s investigation.
“The cease and desist was a fair settlement,” said Riordan to Bloomberg Business, and added that customer funds had been refunded in July 2014, before the CFTC made contact with the company: “There wasn’t enough trade volume for the site to sustain itself.”
A follow-up Bloomberg Business article lists reactions and comments to the CFTC claim from notable members of the Bitcoin community.
“There are so many regulators in the U.S., and they all want more jurisdiction, which leads to a constant stream of bizarre rulings,” said Bitcoin developer Mike Hearn. “None of them has much work to do because there’s not a whole lot of financial innovation happening in the States. So when they find a small one-man startup they can’t resist giving themselves work to do – so they go in and whack it, especially in California.”
Heard added that he is not terribly surprised and not terribly worried.
“I think the CFTC has a very weak case here and it’s a very creative reinterpretation of what the word commodity means,” he said. “The ruling will be challenged, and judges will apply common sense and decide it to be a currency.”
Some commentators said that compliance with the Commodity Exchange Act and applicable CFTC regulations would be too costly for many Bitcoin startups, with the predictable result that many innovative U.S. companies will be forced to move offshore.
Others, in agreement with Hearn, noted that the CFTC claim is inconsistent with related decisions by regulatory agencies in the United States and other countries.
Journalist David Seaman summarized the situation in a tweet: “To commodities regulators, Bitcoin is a commodity. To bank regulators, it’s a bank. To stock regulators, it’s a stock. Everyone wants ‘in.’”
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