On 17 September 2015, the Commodity Futures Trading Commission (the "CFTC") reached a settlement with Coinflip, Inc. and its chief executive officer for violations of provisions of the Commodity Exchange Act and CFTC regulations arising out of their running a market for Bitcoin options and futures without registering with the CFTC.
Coinflip's online exchange allowed buyers and sellers to trade Bitcoin options and futures contracts. Payments on the exchange were made by using Bitcoins according to an independently determined spot exchange rate. The CFTC's theory of liability was premised in part on its characterization of Coinflip's exchange as a "swap execution facility or designated contract market" because "swaps" under the Commodity Exchange Act include option contracts. But even more fundamental to the CFTC's action was its determination that virtual currencies such as Bitcoin qualify as a "commodity" under the Commodity Exchange Act's broad definition that includes "all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in". The CFTC also defined a "virtual currency" such as Bitcoin "as 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." This definition goes on to distinguish virtual currencies "from 'real' currencies ... that are designated as legal tender, circulate, and are customarily used and accepted as a medium of exchange in the country of issuance."
The parties reached a settlement whereby Coinflip and its chief executive officer did not admit or deny the CFTC's findings, the CFTC issued a cease-and-desist order against future violations of the provisions at issue, and the Coinflip parties would cooperate with the CFTC and related governmental enforcement activities and would not make public statements challenging the Order. This enforcement action highlights how the nascent technology of virtual currencies can potentially qualify under different regulatory definitions and schemes. The CFTC here has now characterised virtual currencies like Bitcoin as a commodity within its statutory authority. Even more broadly, this ruling shows that the law relating to virtual currencies is still developing. Parties that deal in them should take that into account.
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