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 Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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The issue of whether virtual currencies can be legally deemed commodities is an important one, at least as far as the U.S. Commodity Futures Trading Commission (CFTC) is concerned. The regulator only has jurisdiction over commodities, and without supportive interpretations of the law, they are powerless to act.
However, the CFTC has become increasingly aggressive towards alleged crypto scams in recent months, the latest concerning a virtual currency called My Big Coin (MBC), in which the regulator has been proactive in bringing enforcement action against its promoters.
This week, a court in Massachusetts has backed the CFTC in their interpretation of virtual currencies as commodities (and thus within the regulator’s jurisdiction), in the process dismissing a petition from the coin’s promoters to have the case set aside, Finance Feeds reported.
My Big Coin Pay, the company behind MBC, had argued that virtual currencies were not commodities as commonly defined, and as such, the CFTC had no jurisdiction in their case against Randall Crater of My Big Coin.
The complaints concern allegations of fraud and/or manipulation in connection with the virtual currency, and could see Crater and the other named defendants subject to further enforcement action at the hands of the CFTC. Now, with the court ruling against the defendants, the verdict comes as the latest judgement to support the CFTC’s position.
Summing up, Judge Rya W. Zobel said that there was no question CFTC had sufficiently satisfied the court that My Big Coin was in fact a commodity.
According to the ruling, “Here, the amended complaint alleges that My Big Coin is a virtual currency and it is undisputed that there is futures trading in virtual currencies (specifically involving Bitcoin). That is sufficient, especially at the pleading stage, for plaintiff to allege that My Big Coin is a “commodity” under the Act.”
The allegations primarily focus on misrepresentations around My Big Coin, which was marketed as a fully functional virtual currency, along with a number of other falsehoods, including representations that My Big Coin was backed by gold and that it could be used for payment in any location that accepts Mastercard.
The CFTC further alleged the group intentionally switched the price of their cryptocurrency, in such a way as to mimic an organic market, with those caught up in the scheme subsequently unable to access their funds.
With the recent ruling falling in favour of the CFTC, the regulator now has a renewed impetus to tackle cryptocurrency scams.
Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
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