CFTC Rules Bitcoin Is a Commodity, Takes Action Against Options Offering

The US Commodity Futures Trading Commission (CFTC) has taken action against the operator of a platform offering options on bitcoins.

The US Commodity Futures Trading Commission (CFTC) has taken action against the operator of a platform offering options on bitcoins.

The CFTC said that it was the first action ever taken involving bitcoin instruments. In so doing, it has ruled that bitcoin is a commodity. The ruling is comparable with that of the IRS last year, which classified virtual currency as property, not currency.

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A San-Francisco-based startup, Coinflip, allegedly operated its platform, Derivabit, allowing users to trade options based on bitcoin. The offering was available between March 2014 and August 2014.

In deeming bitcoin a commodity, the regulator asserted that derivatives based on it fall under its oversight. It ruled that the operation, which was not registered, was in contravention of Commodity Exchange Act (CEA) and CFTC regulations by offering option contracts on commodities.

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It further charged that Coinflip operated swap execution facility without registration. ‘Swaps’, according to CEA rules, also include options contracts.

The CFTC ordered the platform and its operator, Francisco Riordan, to cease and desist from further violations. The enforcement action was immediately settled without penalties.

“While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets,” said Aitan Goelman, the CFTC’s Director of Enforcement.

Last week, the regulator granted temporary registration to bitcoin options platform LedgerX as a swap execution facility. The platform will undergo “a substantive review” of its application for full registration, after which it may become the first fully regulated bitcoin derivatives platform.

Last November, the regulator’s Commissioner, Mark P. Wetjen, went as far as suggesting that the agency has the authority to take action against price manipulation of bitcoin- even spot prices, without contracts. He argued that the CFTC’s definition of a commodity is broad enough to include bitcoin.

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