The Commodity Futures Trading Commission’s LabCFTC recently released, “A CFTC Primer on Virtual Currencies.” This primer provides an overview of virtual currencies and their potential use-cases, helps outline the CFTC’s role and oversight of virtual currencies, and cautions investors and users of the potential risks involved with virtual currencies.

Among some of the highlights, the CFTC stated:

  • The CFTC first found that Bitcoin and other virtual currencies are properly defined as commodities in 2015.
  • The CFTC has oversight over futures, options, and derivatives contracts.
  • The CFTC’s jurisdiction is implicated when a virtual currency is used in a derivatives contract, or if there is fraud or manipulation involving a virtual currency traded in interstate commerce.

The CFTC also gave some examples of prohibited activities, including:

  • Price manipulation of a virtual currency traded in interstate commerce.
  • Pre-arranged or wash trading in an exchange-traded virtual currency swap or futures contract.
  • A virtual currency futures or option contract or swap traded on a domestic platform or facility that has not registered with the CFTC as a SEF or DCM.
  • Certain schemes involving virtual currency marketed to retail customers, such as off-exchange financed commodity transactions with persons who fail to register with the CFTC.

The CFTC referenced the recent SEC report on its investigation of the DAO, and concluded: “There is no inconsistency between the SEC’s analysis and the CFTC’s determination that virtual currencies are commodities and that virtual tokens may be commodities or derivatives contracts depending on the particular facts and circumstances.”

Lastly the report identifies some of the risks investors should consider when dealing with virtual currencies.

LabCFTC was launched in May 2017 and is dedicated to facilitating market-enhancing financial technology (FinTech) innovation, fair market competition, and proactive regulatory excellence and understanding of emerging technologies. LabCFTC is designed to make the CFTC more accessible to FinTech innovators, and serves as a platform to inform the Commission’s understanding of emerging technologies. LabCFTC will enable the CFTC to be proactive and forward-thinking as FinTech applications continue to develop, and to help identify related regulatory opportunities, challenges, and risks.