In its first recognition that virtual currency is a commodity, the U.S Commodity Futures Trading Commission has charged a Bitcoin exchange with operating an unauthorized trading platform.
The Coinflip exchange began offering Derivabit, a platform for trading Bitcoin options and futures contracts, in March 2014. According to the CFTC, the requirements of the Commodity Exchange Act applied to Derivabit because Bitcoin and other virtual currencies are “properly defined as commodities.”
To settle the commission’s charges alleging violations of the law, Coinflip agreed to cease offering illegal Bitcoin options and operating an unregistered trading platform.
“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, the CFTC’s director of enforcement, said in a news release.
Bloomberg said the implications of the CFTC’s move are “potentially numerous”
“By this action, the CFTC asserts its authority to provide oversight of the trading of cryptocurrency futures and options, which will now be subject to the agency’s regulations,” it explained. ”In the event of wrongdoing, such as futures manipulation, the CFTC will be able to bring charges against bad actors.”
The commission said Coinflip violated the Commodity Exchange Act by “conducting activity related to commodity options contrary to commission regulations and by operating a facility for the trading or processing of swaps without being registered as a swap execution facility or designated contract market.”
Derivabit was advertised as a “risk management platform … that connects buyers and sellers of standardized Bitcoin options and futures contracts.” It had about 400 users before being shut down in August 2014.
The CFTC “is bringing dealings in Bitcoin, long prized for its anonymity, into the light,” Bloomberg observed. “While this could help clean up U.S. trading around the product … it is also likely to increase the cost of doing business.”
Coinflip CEO Francisco Riordan said customer funds had been refunded before the CFTC made contact with the company, adding, “There wasn’t enough trade volume for the site to sustain itself.”