The CFTC published a “primer” that (i) provides a high-level overview of virtual currencies, (ii) outlines the CFTC’s oversight of the space and (iii) cautions market participants of the risks associated with virtual currencies.
The primer outlines potential use-cases for virtual currencies and blockchain, as well as situations in which CFTC jurisdiction is indicated. The report notes that virtual currencies are commodities, but acknowledges that, beyond preventing fraud or manipulation, the CFTC generally does not oversee “spot” markets in commodities; i.e., short-term trades settled by the delivery of the relevant product.
The primer, produced by the CFTC’s “LabCFTC,” is intended to be the first in a series of publications intended to help market participants understand technological innovation in the financial space and the CFTC’s role.
Lofchie Comment: The division of authority between the CFTC and the SEC can be quite complex. That said, the CFTC is absolute correct in noting the fact that “virtual currency” or an “ICO” may be both (i) a “commodity” for purposes of the Commodity Exchange Act and (ii) a “security” for purposes of the securities laws. The primer also correctly acknowledges that the CFTC does not have authority over ordinary cash-market transactions in a commodity, but only in derivative or certain financing transaction with respect to a commodity. Accordingly, persons trading in these assets must be mindful that the terms of the transaction will determine the financial regulations to which they are subject.