A pending legal challenge to the authority of the U.S. Commodity Futures Trading Commission (CFTC) could establish a new precedent for the regulator’s oversight of cryptocurrency markets.
The legal challenge concerns a relatively unknown cryptocurrency, My Big Coin, which the CFTC alleges has been involved in a fraud estimated at $6 million, according to a Reuters report.
But having announced their intention to sue the promoters of the currency in January, the CFTC now faces a retaliation that argues the CFTC has no authority to investigate cryptocurrencies.
According to counsel for My Big Coin, cryptocurrency cannot be considered a commodity in the same way as steel or coffee, or a type of futures contract, and therefore falls out of the regulatory ambit of the CFTC.
Representing founder Randall Crater, lawyer Katherine Cooper averred that the case against My Big Coin was beyond the powers of the CFTC, saying, “Our argument boils down to the fact that because My Big Coin does not have future contracts or other derivatives trading on it, it is not a commodity.”
Commentators have suggested that if the ruling goes against the CFTC, it would call into question the futures regulator’s authority over alleged cryptocurrency frauds, none of which (with the exception of the SegWit BTC coin) are used as an underlying asset for derivatives.
Gregory Kaufman, a lawyer at Eversheds Sutherland, said the ruling could have profound consequences for the sector, telling Reuters, “It would have a chilling effect on the CFTC’s application of its powers in this area.”
While the U.S. Securities and Exchange Commission (SEC) has claimed regulatory responsibility over initial coin offerings (ICOs), there remains some debate as to where the authority for cryptocurrency scams and frauds would fall.
While the CFTC has thus far brought as many as eight cases relating to tackling alleged scams in the sector, this landmark legal challenge could seriously undermine their efforts to become the de facto regulator of crypto frauds.
Back in March, the status of cryptocurrency as a commodity was upheld by a district judge in Brooklyn, and some commentators have suggested My Big Coin could still lose on the day based on the legal definition of commodities.
Nevertheless, all eyes will be on the progress of the case during an initial hearing in Boston, scheduled for Thursday—not least at the CFTC, who face the prospect of losing their authority in future similar cryptocurrency cases.
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