NEW YORK (Reuters) – Virtual currencies like bitcoin can be regulated as commodities by the U.S. Commodity Futures Trading Commission, a federal judge ruled Tuesday.
U.S. District Judge Jack Weinstein in Brooklyn ruled that the CFTC had standing to bring a fraud lawsuit against New York resident Patrick McDonnell and his company Coin Drop Markets, allowing the case to go forward.
Weinstein also entered a preliminary injunction barring McDonnell and Coin Drop Markets from engaging in commodity transactions.
As Ed Baer, Ropes & Gray investment management counsel mentioned:
“While District Judge Weinstein’s ruling confirms the U.S. Commodity Futures Trading Commission’s prior determination that virtual currencies like bitcoin are “commodities” subject to regulation by the CFTC, recent statements by U.S. Securities and Exchange Commission Chairman Jay Clayton suggest that various types of these cryptocurrencies – especially coins issued in initial coin offerings (or ICOs) – may be securities subject to regulation by the SEC. The challenge for cryptocurrency exchanges and investors, as well as for regulators such as the SEC and CFTC, will be to determine which of the over 1,000 types of these cryptocurrencies are securities and which ones are not. Given that the test used to determine whether an instrument is a security was developed more than 60 years before Satochi Nakamoto published the paper describing bitcoin, the uncertainty around the regulatory treatment of most cryptocurrencies will remain despite Judge Weinstein’s ruling.”