The Commodity Futures Trading Commission (“Commission”) recently entered an order finding that Coinflip, Inc. d/b/a Derivabit (“Coinflip”), an unregistered Bitcoin options trading platform, and its founder and CEO, Francisco Riordan (“Riordan”) violated Sections 4c(b) and 5h(a)(1) of the Commodity Exchange Act (“CEA”), and Commission Regulations 32.2 and 37.3(a)(1). The action is based on the Commission’s finding, for the first time, that “Bitcoin and other virtual currencies are encompassed in the definition [of ‘commodity’] and are properly defined as commodities.” The Commission made this finding without discussion other than to note that Section 1a(9) of the CEA defines “commodity” to include “all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in.” The Commission did not impose penalties against either respondent.
The Commission found that between March 2014 and July 2014, Coinflip “conducted activity related to commodity option transactions, offered to enter into commodity option transactions, and/or confirmed the existence of commodity options transactions,” in violation of Section 4c(b) of the CEA and Commission Regulation 32.2. The Commission also found that Coinflip violated Section 5h(a)(1) of the CEA and Commission Regulation 37.3(a)(1) by operating a facility for the trading of swaps without registering the facility as a swap execution facility or designated contract market.
This case is notable because the Commission asserted its jurisdiction over Bitcoin and presumptively other alternative currency markets for the first time. The Commission named Riordan individually as a Respondent, which is business as usual, and found Riordan to have violated multiple provisions of the CEA and Commission Regulations, but it did not impose any penalty for those violations. The Commission simply required Riordan (and Coinflip) to cease and desist from violating the specific CEA provisions and Commission Regulations discussed in the Order. This is a very atypical enforcement result and suggests the importance and value that the CFTC attached to establishing a record of its enforcement authority over these new markets.
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