CFTC’s Bitcoin Commodity Ruling & ETFs

September 27, 2018

The long debate over what bitcoin actually is from a regulatory perspective—a currency, a commodity or a security—is finally over.

The U.S. Commodity Futures Trading Commission (CFTC) officially called bitcoin a commodity, which means it’s essentially claiming it under its umbrella.

“It comes as no surprise that the CFTC is calling bitcoin a commodity. The CFTC had signaled its views on the subject nearly a year ago,” Jared Marx, attorney at Washington, D.C. law firm Harris, Wiltshire & Grannis, told CoinDesk.

“More broadly, the classification also now means it is more likely the CFTC could, under its market manipulation authority, police fraudulent activities on exchanges where bitcoins—and not just bitcoin derivatives—are traded,” he said.

Good For ETFs?

Oversight has long been one of the issues the Securities and Exchange Commission has held against attempts at packaging bitcoin in ETF wrappers. The SEC has thus far only rejected bitcoin ETF plans—it has never said yes to any.

Just last month, the SEC turned down nine different bitcoin ETF proposals citing concerns about manipulation and about exchanges’ ability—or lack thereof—to prevent "fraudulent and manipulative acts and practices." Earlier this year, it said no to the Winklevoss brothers’ bitcoin ETF plans as well.

Could this CFTC classification be a game-changer for bitcoin ETFs down the road? Perhaps. The CFTC’s very mission is to “foster sound markets.” From its website:

“The mission of the CFTC is to foster open, transparent, competitive, and financially sound markets. By working to avoid systemic risk, the Commission aims to protect market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act (CEA).”

Under the CEA, the definition of a commodity is broad, according to the CFTC, which means bitcoin could fall under it. “It can mean a physical commodity, such as an agricultural product or natural resource; it can mean a currency or interest rate; and it also includes ‘all services, rights, and interests ... in which contracts for future delivery are presently or in the future dealt in.’”

In theory, as a commodity, from a regulatory perspective, bitcoin could be treated like gold or oil, and have ETFs built around it much like the physical commodity SPDR Gold Trust (GLD) or the futures-based commodity ETF, the U.S. Oil Fund (USO).

The next turn of the wheel on the bitcoin ETF saga comes later this month, on Sept. 30, when the SEC is expected to rule on the proposed VanEck SolidX Bitcoin Trust ETF.

Contact Cinthia Murphy at [email protected]

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