New Federal Court Ruling Defines “Virtual Currencies as Commodities”
In what is being considered to be a landmark move by the crypto community at large, the US CFTC announced via its official twitter handle that digital currencies are officially going to be recognized as commodities by the United States’ government henceforth.
— CFTC (@CFTC) October 3, 2018
While many people on Twitter believe that this move will inject the crypto sector with fresh ‘bullish momentum’, the context of the the ruling in question was “anything but bullish”.
In fact, when examined closely, it becomes all to apparent that the only reason why the court labelled “cryptocurrencies as commodities” was in order to expand the federal government’s authority to prosecute scammers and hackers within this burgeoning market space.
The Nitty-Gritty of the Matter
When looking at the official CTFC website more closely, this latest decision by the US Federal Court starts to make more sense. For example, the press release on CTFC’s website starts by saying:
“ On September 26, 2018, Senior Judge Rya W. Zobel of the U.S. District Court for the District of Massachusetts, entered an order holding that the Commodity Futures Trading Commission (CFTC) has the power to prosecute fraud involving virtual currency and denying the defendant's’ motion to dismiss the CFTC’s amended complaint.”
The latest distinction arose as a result of the CTFC filing a case against a project called ‘My Big Coin’, which for whatever reason ended up appearing on the institutions radar. The defence team acting on behalf of My Big Coin argued that the “CFTC did not have the proper jurisdiction to pursue such criminal measures” since the offering in question was not technically a commodity.
With this information in mind, if the judge would have sided with My Big Coin during the case, the landscape of the US digital market would have changed quite substantially. However, that was not to be as the ruling stated explicitly that digital currencies can now be considered to be ‘commodities’, and can thus be placed within the CFTC’s regulatory scope.
What Implications Will This Judgement Have?
One on the main outcomes to have arisen as a consequence of this latest judgement is that various blockchain projects will now be open to face serious charges from the United States federal government (which could really curtail the overall freedom of this market sector).
Not only that, crypto projects can now even be prosecuted on matters that lie beyond the scope of ‘market manipulation’ as it had to be with the SEC.
In terms of what the CTFC now wants, it looks as though the trading body is looking to obtain “full restitution” for the victims as well as the “re-acquisition” of all assets that are associated with My Big Coin and its parent company.
Why Was This Decision Not “Bullish” in Nature?
For starters, it should be made clear that via this decision, the CFTC did not say that all digital assets are commodities, but rather only virtual currencies can be termed as such. With that in mind, it is worth remembering that ‘not every cryptocurrency can be deemed to be a virtual currency’.
In most cases, ‘platform-based’ cryptocurrencies or projects that make use of ICOs to raise money employ tokens that simply serve as vehicles for funding ideas rather than act as full fledged currencies.
Another reason why this decision is not bullish is because the CTFC now has a much broader range of prosecution when it comes to crypto projects. As is clear from the My Big Coin case, the CTFC can now even pursue projects on the basis of “misrepresentation” — something that the SEC has quite often avoided.
This latest decision by the US Federal Court signals the beginning of increased regulatory pressure on the nation’s crypto sector as a whole. It is also quite clear now that the US judicial system has reached a point where it is tired of scammy projects infecting its financial ecosystem.
Increased caution would be the best way moving forward from here on out.