As readers of our blog are aware, courts and regulators are playing catch-up when it comes to cryptocurrencies, and to interpreting existing laws and regulations as applied to these new and innovative offerings. One of these many important questions relates to whether virtual currencies are “commodities” within the meaning of the Commodity Exchange Act (CEA) and subject to regulation by the Commodity Futures Trading Commission (CFTC). A recent ruling by a US district court in Massachusetts held that a virtual currency (My Big Coin) is a commodity within the meaning of the CEA and is therefore subject to the anti-fraud authority of the CFTC, even though there currently is no futures contract on My Big Coin. My Big Coin is a Las Vegas-based creator of software that purportedly allows for the anonymous exchange of currency.
The CEA defines a “commodity” to include an enumerated list of agricultural and livestock commodities, and all goods and articles and all services, rights, and interests in which contracts for delivery are dealt in presently or in the future. Since at least September 2015, the CFTC has held that Bitcoin and other virtual currencies are within the definition of commodity. In the My Big Coin case, the defendant tried to argue that since there are no futures contracts on My Big Coin, it was outside the statutory definition of commodity. But the CFTC argued that in interpreting the definition of commodity, the court should focus on whether virtual currency as a class is a commodity in which futures may be transacted, and if so, whether My Big Coin is part of the virtual currency class. The court agreed with the CFTC that the definition of commodity should be given an expansive view, and that since futures exist for Bitcoin, which is a virtual currency, that means virtual currency as a class, including My Big Coin, is a commodity, notwithstanding that there is not currently a futures contract for My Big Coin.
However, the case does not mean that all crypto-assets are necessarily commodities. Thus, the CFTC takes the position that for the purposes of the commodity definition, virtual currency means “a digital representation of value that functions as a medium of exchange, a unit of account and/or a store of value, but does not have legal tender status in any jurisdiction.” In turn, it may be that not all crypto-assets are commodities, but only those that satisfy one of the CFTC’s functional descriptions of virtual currency. Rest assured that we will hear more on the topic from courts and from regulators in the not-so-distant future, and we will continue to update you with new developments.