this week decided by a U.S. district judge that an allegedly fraudulent crypto-Token meets the Definition of a commodity. This brought the case under the Commission Commodity Futures Trading Commissions (CFTC), the long argued that virtual currencies represent. We ask, what does this mean – and how the supervision of their attitude to the legal Status of crypto-currencies.
Are crypto-currencies or securities? Now, you can be both
The regulatory approach for crypto-currencies in the U.S. complex. While the Congress holds the Power over Federal regulatory agencies like the Securities and Exchange Commission (SEC) and the CFTC, he has issued no guidelines on this topic.
Because there is no definitive set of rules to which all agencies can keep pursuing each regulator has its own approach, even if it conflicts with other perspectives. In particular, the SEC crypto-currencies considered to be securities, while the CFTC treats them as Goods, and both have tried to secure their positions before the court.
These different approaches seem to be actually able to coexist. As CFTC Commissioner Brian Quintenz, explained to Bloomberg in October 2017, may change in the „crypto-Token that will be offered in a sale,“. You can start your life as a SEC regulated securities from a capital perspective rise, but then at some point, perhaps may be quickly or even instantly to a product. „In February 2018, the agencies held a joint session about their roles in the crypto industry, where you have mentioned that you work together are willing to create a regulatory framework.
In may 2018 held by the Commissioner of the ECTF, Rostin Behnam, a speech in which she stressed the growing cooperation between his Agency and the SEC:
„I have my Position in relation to the CFTC, and the SEC’s efforts to harmonize the rules spoken. Given the large number of two registered market participants, and the overlapping policy a real Chance for the CFTC and SEC to harmonize redundant rules, and to bring both market participants and regulatory authorities in a stronger Position.“
Shortly afterwards, in June, the financial Director of the SEC’s Corporation, William Hinman, that his Agency considers neither Bitcoin (BTC) Ethereum (ETH) as securities, because they „are decentralized in their present condition“ to a large extent. Instead, you would focus on the Initial Coin Offerings (ICOs).
argued that The CFTC, in turn, that virtual currencies are entered since 2015, the Commodity Exchange Act (CEA). Citing the document, the authority notes that crypto-currencies would be closer to the Gold than to conventional currencies or securities, as they are not supported by the government and not liabilities is bound to you.
In July 2017, the CFTC approved for the first time, the trading of Bitcoin Futures. The Agency has an institutional Bitcoin-derivatives-trading and clearing platform Ledgerx as a fully-regulated Bitcoin option exchange and settlement stock exchange under the CEA.
„by a unanimous decision of the Commission of the company Ledgerx, LLC (Ledgerx) has granted a registration as a clearing Agency for derivatives pursuant to the Commodity Exchange Act (CEA) approved:. […] Ledgerx will be entitled in the framework of this decision, the payroll services for the fully and completely secured digital currency-Swaps to perform.“
CFTC vs. crypto scammers
On 26. September judge Rya W. Zobel of the district court of Massachusetts a motion to dismiss a proceeding against Randall Crater and its company My Big Coin Pay Inc. meadow back. Thus, the view of the CFTC was given that crypto-currencies are commodities, another victory.
argued to The CFTC that the Craters in the Nevada-based company My Big Coin Pay they offered a crypto-System in which the sale of a „fully functional“ virtual currency called „My Big Coin“ (MBC). According to the details of the case, the defendant’s customers, to entice you to buy a MBC due to incorrect information. In particular, they lied, that MBC was „covered with Gold“, everywhere could be used wherever Mastercard was accepted, and on several stock exchanges, the „active“ action will be taken. This is in contravention of the Commodity Exchange Act (CEA), argued that the regulatory authority.
in addition, It was accused of the accused to have the value of MBC is „arbitrary“ manipulated to the fluctuations in the price of a reasonable crypto imitate currency. Investors could check their account status on the Website, but „could not act with your MBC or withdraw money.“ My Big Coin Pay-Partner received as a result of these measures, more than 5 million euros out of a total of 28 investors.
trying to get The lawyers of the Crater, to discard the case of the CFTC. They argued that the Token is neither a tangible Good nor a service, on which Futures contracts are based, and should avoid, therefore, the supervision of the Supervisory authority. They allegedly also compared the tokens with Bitcoin.
sable decided to categorize both MBC as well as BTC as a virtual currency, in which „contracts for future delivery […] currently.“ Essentially Zobel upheld the reasoning of the CFTC that for the purposes of the CEA, a „commodity“ is broader than any particular type or brand of this product, and also points to the existence of Bitcoin Futures contracts:
„Here it is, in the amended complaint, My Big Coin is a virtual currency, and it is undisputed that Futures are traded in virtual currencies (in particular Bitcoin). Will it be enough to assert in court My My Coin to be regarded before the law as a „commodity“.
The CFTC has demonstrated that virtual trade goods are already on trade in goods,
As already mentioned, it was not the first case in which the CFTC demonstrated that they could monitor the crypto market through the CEA directly. It is important that sable took that as a precedent to its previous decision in this case.
So berwachte in March 2018, the district judge, Jack Weinstein of New York Eastern District Court case of the CFTC against Patrick McDonnell and his company, Coin Drop Markets (CDM). The claim of the authority, the customers of CDM were never paid for financial advice as well as the fact that the CDM was never registered with the CFTC.
Weinstein agreed with the CFTC that virtual currencies are in the framework of the CEA, and therefore the CFTC against McDonnell and his company could proceed due to fraud virtual Currency. More specifically, the judge confirmed this statement by arguing that he would be supported by the clear meaning of the word „goods“ and that the CFTC „have a wide leeway“ to interpret the Federal law.
In August, the CFTC has received a court order to prohibit the other from Patrick McDonnell-run company by the name of cabbage-tech Corp. for „three of the most malignant fraud“ permanently. Similar as in the case of Massachusetts argued McDonnell, that the CFTC did not have the power to regulate its commercial operations. The judge rejected this request and sentenced the defendant to the payment of 249.906 euros in compensation and 749.720 of euros in penalties.
Will regulate the CFTC in the near future?
Despite some key successes in court, the CFTC crypto-scammers still from case to case. It seems that the regulatory authority is still able to recognize questionable companies and to prohibit, but it is also important to note that the CFTC has dealt with crypto-currencies carefully. In an Interview with CNBC in September, CFTC Chairman and Christopher Giancarlo stressed that crypto needs a „do no harm“ approach (do no harm), the regulatory authorities, in order to thrive:
„I am in favour of currencies to use the same approach for Crypto and everything that has to do with this new digital Revolution, the markets, currencies and asset classes.“
nevertheless, the difference Giancarlo between the short-term approach of the CFTC to combat criminal activities on the crypto market and the longer-term decisions of the authority on the policy making for the industry:
„When it comes to fraud and Manipulation, we need to be strong. When it comes to politics, I think that we must slowly and consciously, and to be well informed.“
The recent actions of the CFTC be seen as part of a broader trend of the U.S. regulators as they expand their remit within the crypto industry in the past few months. However, there are no signs of a comprehensive crypto-legislation in the near future. In may, Giancarlo said that he would not see such a framework in the near future from the Federal level, and pointed out that the articles of Association the CFTC was written in 1935. The categorization of something as „new and innovatiem“ such as Bitcoin need so time.