Bitcoin is Officially a Currency, Property, Money, and Now a Commodity

The U.S. Commodity Futures Trading Commission (CFTC) announced on Thursday that it finds Bitcoin and other virtual currencies “are properly defined as commodities.” A definition that was required to issue charges against a bitcoin service provider.

“In [the] First Action against an Unregistered Bitcoin Options Trading Platform, CFTC Holds that Bitcoin and Other Virtual Currencies Are a Commodity Covered by the Commodity Exchange Act.”
— – CFTC

The CFTC clarified its position while ordering a bitcoin options trading platform operator, and its CEO, to “cease illegally offering bitcoin options and to cease operating a facility for trading or processing of swaps without registering.”

The regulator issued charges against Coinflip, Inc. and its chief executive officer Francisco Riordan, “for conducting activity related to commodity options transactions without complying with the Commodity Exchange Act (CEA) and CFTC Regulations.”

“The definition of a ‘commodity’ is broad. Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.”
— – CFTC

In December 2014, CFTC Chairman, Timothy Massad, testified before the U.S. Senate Committee on Agriculture, Nutrition & Forestry in Washington, DC, that “while the CFTC does not have policies and procedures specific to virtual currencies like bitcoin, the agency’s authority extends to futures and swaps contracts in any commodity.”

Massad’s testimony appears to reflect the wider regulatory approach. In the US, Regulators have been issuing definitions and clarification alongside cases, that involve bitcoin, which fall under each agency’s jurisdiction.

“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, CFTC’s Director of Enforcement

Among the first government agencies to clarify its position was the Securities and Exchange Commission (SEC). In 2013 the SEC brought a case against a “bitcoin-denominated Ponzi scheme,” Bitcoin Savings and Trust (BTCST) and its founder Trendon Shavers.

The complaint alledges “fraudulent offers and sales of securities.” Shavers was accused of falsely promising investors up to 7% weekly interest, based on BTCST’s purported bitcoin market arbitrage activity, including selling bitcoin to individuals who wished to buy “off the radar,” quickly, or in large quantities.

Shavers argued primarily that his company’s investments were “not securities because Bitcoin is not money, and Bitcoin is not, and cannot be, regulated by the United States.” The SEC argued that BTCST’s bitcoin investments met the definition of a security because they were both investment contracts and notes. The US District Court sided with the SEC, finding “no reason to conclude that Bitcoin is not money.”

The Financial Crimes Enforcement Network (FinCEN) has also clarified its definition of the digital currency, considering it “a medium of exchange that operates like a currency in some environments.” FinCEN regulates Money Service Businesses, which are required to obtain Money Transmitter Licenses, an expensive process that few startups can afford, and few bitcoin service providers have been able to achieve.

Joining the Courts, the SEC and FinCEN, the Internal Revenue Service (IRS) stepped in last year, and officially announced that bitcoin and other virtual currencies are to be treated as property for federal tax purposes.

“In some environments, virtual currency operates like ‘real’ currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction.”
— – IRS

This clarification from the tax authority allows them to state that “General tax principles that apply to property transactions apply to transactions using virtual currency.”

The topic of regulation divides the Bitcoin industry. While Coinflip’s CEO, Riordan, may have mistakenly assumed that the government’s apparent inability to regulate the currency itself offered protection against his activities, the SEC laid charges none the less. Government regulators, it appears, are there to regulate the activities, not the currency. LedgerX CEO Paul Chou states, “Federal agencies will enforce a regulatory framework to protect the market and its participants.”