The CFTC filed and simultaneously settled charges against a Hong Kong-based exchange for (i) offering illegal off-exchange financed retail commodity transactions in bitcoin and other "cryptocurrencies," and (ii) failing to register with the CFTC as a futures commission merchant ("FCM").
The CFTC found that the respondents (i) operated an online bitcoin trading platform that accepted users who did not meet the definition of "eligible contract participants" or "commercial entities," (ii) allowed those users to borrow funds from other platform users in order to trade bitcoins on a leveraged, margined or financed basis, and (iii) did not "actually deliver" such coins within 28 days of purchase but instead held the purchased bitcoins in "bitcoin deposit wallets" under its ownership. The CFTC also asserted that bitcoins fell within the definition of "commodities" in CEA Section 1a(9) and that, as a result of all these factors, the exchange engaged in illegal, off-exchange commodity transactions and failed to register as an FCM in violation of CEA Sections 4(a) and 4d.
Commentary
One of the questions raised by the CFTC's action is this: what does it mean to make a "delivery" in the case of commodities such as bitcoins?
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