Business 8 October 2018Dennis Wafula
No, really: Cryptocurrencies are commodities in US
For years, the U.S. Commodity Futures Trading Commission (CFTC) has been clear on its stance—cryptocurrencies are commodities, just like oil and corn. And if that message isn’t clear enough, there are now a couple of federal judges confirming that yes, digital tokens are indeed commodities subject to the authority of the U.S. regulator.
Chris Giancarlo, chairman of CFTC, noted that Federal Judge Rya Zobel has ruled that the U.S. derivatives watchdog has the “authority to prosecute fraud and manipulation in the crypto space.” This is in connection with the case of My Big Coin Pay, which had argued that virtual currencies were not commodities—as they were commonly defined—hence, the CFTC has no jurisdiction in their case against My Big Coin Pay’s operator, Randall Crater.
However, the Massachusetts judge backed the CFTC in its interpretation of virtual currencies as commodities, and in the process, dismissed My Big Coin Pay’s petition to have the case set aside.
In her ruling, Zobel referred to the Bfxna Inc. dba Bitfinex case of June 2016. In this case, the CFTC had fined Bitfinex $75,000 at the time for failing to register as a futures commission merchant and offering illegal off-exchange financed retail commodity transactions. According to Zobel, this case shows the clear definition of cryptocurrencies as commodities.
Zobel’s ruling comes on the heels of another court order in August, which also recognized CFTC’s authority over digital currencies.
The case was against Patrick Kerry McDonnell, operator of Cabbage Tech Corp. or Coin Drop Markets. CFTC accused McDonnell of fraud in connection with virtual currencies, claiming the man had been introducing himself as an expert offering crypto investment advice, only to disappear with investors’ money.
McDonnell’s case fanned the flame of which U.S. agency has jurisdiction over cryptocurrencies. Because cryptocurrencies are still relatively new, legislation does not cover them yet, so there was a question whether the CFTC could “exercise its jurisdiction over fraud that does not directly involve the sale of futures or derivative contracts.” U.S. District Court for the Eastern District of New York Judge Jack B. Weinstein ruled in favor of the CFTC, saying cryptocurrencies are considered as commodities and the CFTC therefore has the authority to regulate them.
Zobel also cited the 2015 Coinflip case, which was essentially the first case where cryptocurrency has been properly defined as commodities by the U.S. regulator. According to the CFTC, the then-San Francisco-based crypto exchange facilitated commodity options-related transactions without complying with the Commodity Exchange Act (CEA) and the CFTC regulations. Because crypto options are deemed as “commodities,” CFTC said the company should have been properly registered and will be subjected to laws governing swaps.
Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.
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