Anthony R.G. Nolan and Eric A. Love
The U.S. Commodity Futures Trading Commission’s (CFTC) New York-based LabCFTC has released a twenty-page primer (the “Primer”) about virtual currencies, virtual tokens and initial coin offerings (ICOs). It’s the first in a series of educational primers that LabCFTC will issue in the coming months about innovations in the FinTech industry.
The Primer answers important questions about how CFTC regulations apply to virtual currencies, virtual tokens and ICOs. Notably, the Primer reiterates that Bitcoin and other virtual currencies are appropriately categorized as commodities and also states that virtual tokens can in some instances be commodities or derivatives contracts even if they are also considered to be securities under the U.S. securities laws. The Primer notes that, in applying U.S. commodity futures laws to virtual tokens, the CFTC will look beyond form and examine the “actual substance and purpose” of particular activities.
Unsurprisingly, the Primer notes that the CFTC has jurisdiction over futures, options, and derivatives contracts that reference virtual currencies or certain virtual tokens, including over fraud or manipulation related to virtual currencies or tokens that are traded in interstate commerce. Finally, the Primer discusses risks posed to both investors and users of virtual currencies and tokens and reminds readers that the CFTC is prepared to police fraud or manipulation in virtual currencies and virtual tokens that are commodity interests.
The Primer appears to suggest the absence of a current conflict between the regulatory approaches of the CFTC and the U.S. Securities and Exchange Commission as they consider the regulatory response to the cryptocurrency explosion.