Federal Judge Claims All Cryptocurrencies Are Commodities, Allows CFTC To Begin Charging Crypto Companies For Fraud


A federal judge announced earlier today that virtual currencies meet the definition of a commodity and fall within the jurisdiction of the United States Commodities and Futures Trading Commission (CFTC).

This is a big deal for a number of different reasons. First, it confirms the idea that US regulators believe virtual currencies are more closely considered commodities – not currencies or securities. Second, it allows the CFTC to pursue fraud allegations against My Big Coin Pay Inc, a case that it has been attempting to pursue since earlier this year. It also opens the door for the CFTC to pursue allegations against other rulebreakers in the future – including, quite possibly, exchanges like Binance that ignore CFTC regulations.

The most important thing to get from this ruling, however, is that a federal court has declared all digital currencies to be commodities.

The federal judge’s decision was closely watched by the CFTC. Moving forward, the judge’s decision will pave the way for the CFTC to continue policing virtual currency fraud regulation. Over the past few years, cryptocurrency fraud regulation has fallen among several different agencies – including the CFTC, the SEC, and other regulatory authorities.

The CFTC Is Suing A Crypto Scammer For Running A $6 Million Fraud

The specific case in question here made headlines back in January. As reported by he New York Times, in January 2018, the CFTC sued technology entrepreneur Randall Crater and his company, claiming that they created a $6 million fraudulent scheme called My Big Coin. The scheme, like similar ICO scams, encouraged users to invest in the My Big Coin cryptocurrency to get rich quick.

My Big Coin was purportedly backed by gold. The scam attracted a total of $6 million in investments from 28 customers. The CFTC initially sued Randall Crater and My Big Coin, then awaited a decision from a federal judge making sure they had jurisdiction to pursue the lawsuit. Now, they officially have that jurisdiction.

Here’s how The New York Times summed up the issue:

“Since both My Big Coin and bitcoin can both be broadly categorized as virtual currencies, and bitcoin futures currently trade on U.S. exchanges, by extension the CFTC has oversight of other virtual currencies including My Big Coin.”

All of the My Big Coin information, at this point, is still just allegations. The CFTC has yet to prove those allegations at trial. The case can now move forward, however, as a result of this latest ruling.

This is big news for cryptocurrency and the CFTC. Essentially, it means that the CFTC has the right to pursue future lawsuits against people who break CFTC laws by participating in illegal crypto schemes. It means the CFTC can move forward with its lawsuit against My Big Coin – and any other parties that have violated the law.

What Does This Mean For Crypto And The CFTC Going Forward?

Government enforcement defense and securities lawyer Jake Chervinsky had a good writeup on the My Big Coin case and today’s CFTC ruling. Overall, Chervinsky was critical of the judge’s decision. He also disputed the idea that this decision was a big deal for crypto – it’s not.

Chervinsky claims the case discussed the traditional definition of a commodity: agricultural products like wheat, soybeans, and livestock, for example, are all commodities, as are “any other goods & services that are ‘dealt in’ futures contracts.” Obviously, bitcoin and other cryptocurrencies meet the latter part of that definition.

There is where Chervinsky introduces a crucial problem:

“The ruling then explains that bitcoin is dealt in futures contracts, so bitcoin fits the definition of a commodity. Okay, makes sense. But there aren’t any My Big Coin futures contracts, so why would *it* be a commodity?”

The ruling acknowledged that bitcoin and My Big Coin were separate entities. However, because My Big Coin had similar properties to bitcoin, and bitcoin is like a commodity, the judge ruled that My Big Coin is a commodity.

“To Be Clear, This Ruling Isn’t That Big Of A Deal”

Chervinsky refutes the claim that this latest ruling is a big deal:

Furthermore, US regulators have still not decided how to classify cryptocurrencies:

“The question of how to classify digital assets will burn on.”

Bitfinex’ed Claims Tether And Major Cryptocurrency Exchanges Are Going Down Next

Noted crypto critic Bitfinex’ed, meanwhile, took things a step further: he claims the judge’s ruling indicates that the CFTC will pursue charges against major cryptocurrency exchanges like Binance. The CFTC won’t just go after crypto scammers: they’ll also go after Tether and cryptocurrency exchanges.

Last week, it was revealed that Binance, Kraken, and Gate.io were suspected to be operating in violation of the law in New York. The matter was passed onto New York’s Department of Financial Services for further investigation.

Now, with this latest decision, it opens the door for the CFTC to pursue legal action against Binance and other exchanges.

“Hey if you’re still on Binance or any other Tether exchange you should get off them. No really,” wrote Bitfinex’ed on Twitter, with a link to the New York Times article attached.

https://twitter.com/Bitfinexed/status/1045101369844277249

Bitfinex’ed has become infamous in the crypto community for insisting that most of the major crypto exchanges are scams, that Tether is a fraud, and that EOS, Bitfinex, and Tether were all founded by the same people. He frequently insists that the sky is falling in the crypto community. He may be right – but all of the Tether-using exchanges continue to operate as normal, and Tether shows no signs of shutting down anytime soon despite frequent criticism from Bitfinex’ed of its auditing procedures. The CFTC, meanwhile, hasn’t charged Tether or any of these cryptocurrency exchanges with any type of crimes.

What’s The Next Step?

The most important thing to get from this is that a federal judge in the United States has ruled that the CFTC has the power to move forward with a lawsuit against someone who used cryptocurrencies illegally because, in the eyes of the judge, cryptocurrencies can be seen as commodities. This is an important precedent moving forward.

That means that this judge sees all cryptocurrencies as commodities. It does not, however, mean that all cryptocurrencies are universally declared to be commodities moving forward.

As lawyer Jake Chervinsky explains,

 

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