In another development that suggests government regulation of cryptocurrencies is inevitable, the US Commodity Futures Trading Commission recently indicated it sees tokens issued through initial coin offerings as commodities.
A primer on virtual currencies issued last week by LabCFTC, a financial technology – fintech – unit of the commodities regulator, noted that the CFTC determined back in 2015 that “Bitcoin and other virtual currencies are properly defined as commodities.”
That determination suggests the agency is poised to assert its regulatory authority when it concludes doing so is warranted. The primer elaborates: “The CFTC’s jurisdiction is implicated when a virtual currency is used in a derivatives contract, or if there is fraud or manipulation involving a virtual currency traded in interstate commerce.”
But more low-key, straightforward, everyday kinds of transactions do not appear to be on the agency’s radar – for now. “Beyond instances of fraud or manipulation, the CFTC generally does not oversee ‘spot’ or cash market exchanges and transactions involving virtual currencies that do not utilize margin, leverage or financing,” the primer continued.
Further, when it comes to ICOs, virtual tokens and CFTC oversight, the document referenced a report released earlier this year by the Securities and Exchange Commission about an ICO involving a virtual currency known as Ether, which investors exchanged for virtual “Decentralized Autonomous Organization” (DAO) tokens. These tokens were used to fund projects in which the investors would share in anticipated earnings.
The SEC determined that these DAO tokens were “securities” under US securities laws. Concluded the primer: “There is no inconsistency between the SEC’s analysis and the CFTC’s determination that virtual currencies are commodities and that virtual tokens may be commodities or derivative contracts, depending on the particular facts and circumstances.”
Cryptocurrency traders, you’ve been warned. Then there’s the IRS – but that’s another story.