The Commodity Futures Trading Commission (CFTC) has already confirmed that bitcoin, and other cryptocurrency assets, will be treated as commodities. Recently, it was disclosed that tokens issued through initial coin offerings (ICOs) may be considered as commodities as well.
Today, LabCFTC, a fintech initiative within CFTC, released a paper titled “A CFTC Primer on Virtual Currencies”. It states the basics of this technology, as well as a number of potential use cases of virtual currencies. After explaining CFTC’s role in this market, the document further discusses CFTC’s current take on tokens supplied by ICOs, and on cryptocurrencies in general.
Back in 2015, CFTC charged an unregistered bitcoin options trading startup for not meeting its rules for exemptions, and ordered for its actions to be ceased immediately. This was the first step against such illegal setups. With this ruling, the agency also declared that bitcoin, and all other digital currencies, are commodities covered by the CEA. The Commodities Exchange Act (CEA) definition of commodity includes “all services, rights and interests… in which contracts for future delivery are presently or in the future dealt in.”
The document also includes comments on the DAO Report released by the Securities and Exchange Commission (SEC) on Tuesday. It discussed a virtual organization in the form of computer code and executed on a blockchain, where investors exchanged Ethereum for virtual DAO tokens. The SEC ruled that these tokens are securities and are therefore subject to US securities law. This prompted a host of regulatory implications.
Both agencies have similar points of views concerning virtual currencies and tokens. It was stated in the LabCFTC release that there is no contradiction between the SEC’s analysis and the CFTC’s stance that virtual currencies are commodities. Moreover, virtual tokens may be commodities or derivatives contracts, depending on the particular facts and circumstances. The agency wrote:
“The CFTC looks beyond form and considers the actual substance and purpose of an activity when applying the federal commodities laws and CFTC regulations.”
The document also discusses a list of permitted and prohibited acts in the cyber-currency market. Like several other releases from US agencies, the document closes with a section on the risks for investors. It warns them against investing in the market without having engaged with an exchange before. "Conduct extensive research before giving any money or personal information to a virtual currency platform," as mentioned in the report.