More than a decade has passed since Bitcoin was created, yet lawmakers and regulators continue to wade through important questions, such as which regulator should be permitted to regulate digital assets. Despite a lack of digital asset legislation, federal regulators, including the Commodity Futures Trading Commission (CFTC), are adding resources to help police fraud in the digital asset markets in light of the rapidly increasing number of enforcement actions related to digital assets.
Despite the uncertainty with respect to digital asset legislation, the CFTC continues to propel its digital asset-related enforcement efforts.
The CFTC made its first official statement on its jurisdiction over "virtual currencies" (i.e., digital assets, including cryptocurrencies) as far back as 2014, when then Chairman, Timothy Massad, testified before the Senate Committee on Agriculture, Nutrition and Forestry:
"The [Commodity Exchange Act] defines the term commodity very broadly so that in addition to traditional agricultural commodities, metals, and energy, the CFTC has oversight of derivative contracts related to Treasury securities, interest rate indices, stock market indices, currencies, electricity, and heating degree days, to name just a few underlying products. Derivative contracts based on a virtual currency represent one area within our responsibility." (CFTC, Testimony of CFTC Chairman Timothy Massad before the U.S. Senate Committee on Agriculture, Nutrition and Forestry (Dec. 10, 2014) available at https://bit.ly/3tEjBuo).
At the time, few paid much attention to the Chairman's significant declaration.
Later, in 2015, the CFTC brought its first enforcement action involving a virtual currency, in which the CFTC asserted that "[b]itcoin and other virtual currencies are encompassed in the definition and properly defined as commodities." (In the Matter of Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan, CFTC Docket No. 15-29 (Sept. 17, 2015)).
Still, market participants remained largely quiet about the declaration.
Then, in 2018, the CFTC's classification was challenged in federal court. (See Commodity Futures Trading Comm'n v. McDonnell, 287 F.Supp.3d 213 (E.D.N.Y. 2018); see also Commodity Futures Trading Comm'n v. My Big Coin Pay, Inc., 334 F.Supp.3d 492 (D. Mass. 2018)). The courts in those cases confirmed the CFTC's authority to classify a virtual currency as a commodity under the Commodity Exchange Act (CEA), even if there was no futures contract listed or traded on the relevant virtual currency. (See Id.) In agreeing with the CFTC's broad assertion of jurisdiction, one such court recognized that courts have "generally...
