The emerging world of cryptocurrency is coming under new scrutiny, thanks to a Sept. 17 ruling from the Commodity Futures Trading Commission (CFTC), which has regulatory authority over the U.S. commodity future markets and is now wading into the cryptocurrency world with Bitcoin.
The CFTC's interest in Bitcoin is beginning by way of an action against Bitcoin exchange Coinflip Inc., which also was doing business under the name Derivabit. CFTC found that Coinflip was not complying with the Commodity Exchange Act (CEA) and CFTC regulations regarding commodity options transactions.
The CFTC's action against Coinflip is the first time that the CFTC has ruled that virtual currencies, including Bitcoin, are defined as commodities.
"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," Aitan Goelman, CFTC's director of enforcement, said in a statement.
The new ruling from the CFTC did not surprise Bitcoin industry watchers.
Perianne Boring, founder and president, Chamber of Digital Commerce, commented that the CFTC has, for some time, expressed the view that Bitcoin is a "commodity" for purposes of the Commodity Exchange Act.
"It is no surprise that the CFTC would exercise its jurisdiction over futures and options trading of Bitcoin, as it does with any other commodity, such as precious metals, foreign currency, oil or soybeans," Boring told eWEEK.
The new ruling is the second significant milestone from the CFTC on Bitcoin so far this month. Boring added that the CFTC provisionally approved LedgerX's Bitcoin options trading platform on Sept. 10.
"We believe that a well-functioning and appropriately regulated futures and options market in Bitcoin is an important step in the overall development of the Bitcoin ecosystem and that the CFTC is the appropriate regulator for such activity," Boring said.
Mark Ranta, head of digital banking solutions at ACI Worldwide, also is not surprised at the CFTC's moves into Bitcoin, though he expects some challenges ahead. "Regulating something that, by definition, goes beyond the borders of a single country will be interesting to follow since that is one of the neat aspects of Bitcoin—to be beyond or above the reaches of local governments," Ranta told eWEEK.
The classification of Bitcoin as a commodity seems strange, to an extent, because most commodities tie back to the future delivery of a physical good (oil, grains, beef, etc.), Ranta said. However, this may just be a case of having an existing round hole (current regulatory set-ups) and a newly minted virtual square peg (Bitcoin), he added.
"Either way, new regulatory environments always create new room for opportunity, so I am guessing we will see more activity, not less in the coming weeks/months," Ranta said.
Sean Michael Kerner is a senior editor at eWEEK and InternetNews.com. Follow him on Twitter @TechJournalist.