CFTC Announced That Federal Court Recognizes Virtual Currencies As Commodities

The Commodity Futures Trading Commission released a press statement Wednesday, announcing federal courts would recognize virtual currencies as commodities and that CFTC had the power to prosecute fraud involving them.

This judgment was passed as a part of a case from September, in which creators of cryptocurrency My Big Coin were charged with fraud. At the time, CFTC had declared MBC was a commodity under the Commodity Exchange Act (CEA) because it was a virtual currency.

Federal Judge Rya W. Zobel of the District Court of Massachusetts agreed with CFTC's stance pointing to the fact that bitcoin futures were already being treated as commodities and were under CFTC jurisdiction. The court also declared the broad definition of commodities as goods, articles, and services “in which contracts for future delivery are presently or in the future dealt in,” the statement said.

Further, the court rejected MBC's claim — that CFTC could only prosecute them based on market manipulation — saying the broad interpretation of commodities included any kind of fraud, whether or not market manipulation had occurred.

Commenting on the court order, CFTC Director of Enforcement James McDonald said: “This is an important ruling that confirms the authority of the CFTC to investigate and combat fraud in the virtual currency markets. This ruling… recognizes the broad definition of the commodity under the CEA, and also that the CFTC has the power to prosecute fraud with respect to commodities including virtual currencies. We will continue to police these markets in close coordination with our sister agencies.”

MBC had been defrauding traders since 2014 by convincing them to buy the cryptocurrency which was, in fact, a sham. The creators of MBC made investors believe the token could be used for trading and was backed by gold.

"Defendants [MBC] misappropriated customer funds by conning people into giving them more than $6 million," and instead of investing the money into the project’s development, they spent it on homes, jewelry and fine art, according to the CFTC statement.

This decision strengthened CFTC’s ability to prosecute cryptocurrency fraud and also brought virtual currencies under its jurisdiction.

In an interview with CNBC’s "Fast Money" on Monday, CFTC Chairman J. Christopher Giancarlo termed the cryptocurrency space a “two-handed approach,” where one hand was regulatory authorities who could help protect investors and prevent fraud, and the other was those bringing in innovation in cryptocurrency.

CFTC’s opinion on cryptocurrencies has historically been positive. Giancarlo also said in the interview: “I personally think that cryptocurrencies are here to stay. I think there’s a future for them.” He did, however, mention that a more "thoughtful and intelligent," approach would likely be necessary to help institutions like the Securities and Exchange Commission and CFTC figure out exactly how to regulate and deal with cryptocurrencies.

CFTC’s first-ever fintech conference was scheduled to start Thursday in Washington, D.C. Attendees include regulators, traders, and the general public. The conference is called FinTech Forward 2018: Innovation, Regulation, and Education, and would explore key emerging technology trends and developments, regulation in cryptocurrency asset markets, safeguarding digital assets, and other relevant topics.