Bitcoin's Surge Prompts U.S. to Police It Like Other CommoditiesBy
Exchanges could face fines if they can’t deliver coins: CFTC
Agency’s proposed guidance defines ‘actual delivery’
Bitcoin’s meteoric rise has moved it out of the shadows of finance. The latest sign that its becoming part of the mainstream came Friday when a key U.S. agency proposed that trading be regulated much like other commodities.
Specifically, the Commodity Futures Trading Commission made clear to market participants that there could be penalties if they can’t show buyers can take physical control of purchased digital coins in 28 days -- a framework that already applies to wheat, oil and gold.
The long-existing rules that require traders and exchanges to be able to deliver physical commodities has sowed some confusion for bitcoin because it’s an asset class that exists only in cyberspace. What makes the issue even more complicated is that many investors are amplifying their bets with margin, or borrowed money.
Bitcoin has jumped more than 1,700 percent in 2017, captivating everyone from retail investors to Hollywood celebrities. The digital currency has advanced 82 percent this month alone, a rise fueled by the CFTC’s decision to allow bitcoin futures to begin trading on exchanges run by CME Group Inc. and Cboe Global Markets Inc.
In its proposal, which the CFTC will seek public comment on for 90 days, the regulator said that if a trader can’t take possession of a virtual currency bought on margin within about a month, the transaction will be treated as a futures contract. Futures contracts are subject to strict CFTC oversight, and failing to register them could subject firms to fines.
The CFTC’s proposed guidance could apply to U.S. exchanges or transactions overseas involving Americans.
“The commission regulates retail commodity transactions, with the exception of contracts of sale that result in actual delivery within 28 days,” the CFTC said in a 23-page document. “The commission considers virtual currency to be a commodity.”
The CFTC said it has faced questions about its views on the delivery of bitcoins since it sanctioned Bitfinex, one of the biggest digital token markets, last year.
The regulator said Bitfinex broke the law because digital coins weren’t provided to buyers in the required time frame. Instead, the platform “held the purchased bitcoins in bitcoin deposit wallets that it owned and controlled,” according to the CFTC. Bitfinex agreed to pay $75,000 to settle the case without admitting or denying the allegations.
Friday’s proposal is the latest move by the CFTC to police virtual currencies, whose surge this year has largely caught regulators off-guard. CME, the world’s biggest exchange operator, plans on Monday to begin offering cash-settled bitcoin futures contracts. Earlier this month, the regulator said it would allow the CME contracts to start trading, as well as futures from Cboe, after they pledged that the products don’t run afoul of the law.
— With assistance by Robert Schmidt