The U.S. District Court for the District of Massachusetts recently sided with the Commodity Futures Trading Commission (CFTC) and decided that virtual currencies are commodities. This ruling confirms the regulator's jurisdiction over virtual currencies and allows it to pursue fraud allegations against defendants My Big Coin Pay.
What makes a commodity?
Wheat, cotton, rice, corn, oats, barley, rye ... These are all listed in the Commodity Exchange Act's definition of "commodity," alongside other food products such as frozen concentrated orange juice. The Act also prohibits dealing in futures of motion picture box office receipts and ... onions.
But the story of the Onion Futures Act is best left for another day. When it comes to crypto-assets, the most relevant portion of the definition of "commodity" includes all services, rights and interests provided through contracts for future delivery, whether these contracts are dealt in presently or in the future. In a word — these are futures.
As pointed out by U.S. District Judge Rya Zobel in the matter of My Big Coin, the law mainly defines the term "commodity" in broad categories, not specific items. For instance, the Commodity Exchange Act classifies "livestock" as a commodity without enumerating which particular species are the subject of futures trading. These categories are designed to ensure the regulatory framework's ongoing effectiveness in regulating the commodity futures trading industry.
My Big Coin v. Bitcoin
The CFTC alleged defendants misappropriated $6 million from 28 individuals by luring investors with a virtual currency named to sound like Bitcoin, and further claiming it was backed by gold. It further alleged defendants claimed the virtual currency could be bought, sold, donated, and used to make purchases, and was actively traded on several currency exchanges. Defendants even claimed the virtual currency was being used to stabilize the economies of 22 countries, when in fact they misappropriated the funds to purchase a home, antiques, fine art, jewelry, luxury goods, furniture, interior decorating and other home improvement services, travel, and entertainment.
Defendants moved to dismiss the case, arguing the CFTC didn't have jurisdiction over virtual currencies because they were neither "tangible goods" nor services on which future contracts are being traded. However, trading in Bitcoin futures is already taking place on U.S. exchanges, which the court held as an undisputed fact. By extension, trading in Bitcoin futures indicates that the CFTC has jurisdiction over Bitcoin and other virtual currencies such as My Big Coin.
Defendants also argued the CFTC's anti-fraud authority was limited to actual market manipulation. The court dismissed this argument, holding the "broad language" in the Commodity Exchange Act prohibits fraud even in the absence of market manipulation.
The litigation continues
Although meaningful for the regulation of virtual currencies, the court's decision was a preliminary one, and some key findings have yet to be proven at trial. One of the key items which remain at issue is the relatedness of Bitcoin and My Big Coin.
Still, the decision is significant because it confirms the CFTC's jurisdiction over virtual currencies. As the litigation continues, the CFTC is now seeking civil monetary penalties, restitution, trading and registration bans, and permanent injunctions against further violations of federal commodities law.
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