Courts, financial regulators, legislators and governments around the world are struggling to fit bitcoin into their existing frameworks. Different legal definitions for the disruptive innovation that is cryptocurrencies can have profound ramifications for the instruments in each jurisdiction such as what agencies will regulate them, under what laws, and how users will be taxed, if at all. A new ruling by a US federal court now tilts the scales towards viewing them as commodities, but that is not likely to be the final word as American lawmakers have yet to have their say.
Cryptocurrencies Are Commodities
Bitcoin-like cryptocurrencies can be regulated by the U.S. Commodity Futures Trading Commission (CFTC), U.S. District Judge Jack Weinstein ruled on Tuesday. The federal judge thus upheld the CFTC’s position from 2015 that cryptocurrencies are commodities, saying it was supported by the plain meaning of the word “commodity” and that the agency had “broad leeway to interpret the law” regulating commodities (The Commodity Exchange Act of 1936).
This ruling came about because the court had to decide whether the CFTC was able to prosecute an alleged fraudster who promised clients cryptocurrency trading advice but never delivered (Patrick McDonnell and his company Coin Drop Markets). By allowing the agency to continue with the case, the judge set a precedent for all other legal cases where defense lawyers might have argued that the CFTC has no standing because bitcoin is not a commodity.
Many ICO Tokens Are Still Securities?
This development is unlikely to deter other American regulatory agencies from also asserting their jurisdiction over the ecosystem. Ropes & Gray investment management counsel Ed Baer explained: “While District Judge Weinstein’s ruling confirms the U.S. Commodity Futures Trading Commission’s prior determination that virtual currencies like bitcoin are “commodities” subject to regulation by the CFTC, recent statements by U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton suggest that various types of these cryptocurrencies – especially coins issued in initial coin offerings (ICOs) – may be securities subject to regulation by the SEC.”
He added: “The challenge for cryptocurrency exchanges and investors, as well as for regulators such as the SEC and CFTC, will be to determine which of the over 1,000 types of these cryptocurrencies are securities and which ones are not. Given that the test used to determine whether an instrument is a security was developed more than 60 years before Satoshi Nakamoto published the paper describing bitcoin, the uncertainty around the regulatory treatment of most cryptocurrencies will remain despite Judge Weinstein’s ruling.”
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