Commodity Futures Trading Commission (CFTC) was very active on the final business day before the globe’s largest futures market maker, CME Group Inc., is to begin its entrance into bitcoin contracts. The regulator created a website devoted to bitcoin, and it issued new cryptocurrency rules of compliance for public comment.
Futures Regulator Issues Compliance Rules
Release pr7664-17, Proposed Interpretation on Virtual Currency “Actual Delivery” in Retail Transactions, concerns “its authority over retail commodity transactions involving virtual currency, such as bitcoin,” the CFTC statement began. In it, they set “out the CFTC’s view regarding the ‘actual delivery’ exception that may apply to virtual currency transactions.”
The CFTC has long held bitcoin to be a commodity as defined within the Commodity Exchange Act (CEA). It is clarifying what that means as market makers under its purview now that Cboe (last Sunday), CME (Monday), Nasdaq (middle of next year), and Cantor Fitzgerald (next year) are moving full-steam ahead to meet an insatiable demand for bitcoin. Broadly speaking, the CEA gives muscle to the CFTC, allowing it to oversee bitcoin/crypto futures on the retail side.
The proposed rules of 15 December 2017 exempt contracts if they’re delivered within 28 days. They establish “two primary factors necessary to demonstrate ‘actual delivery’ of retail commodity transactions in virtual currency: (1) a customer having the ability to: (i) take possession and control of the entire quantity of the commodity, whether it was purchased on margin, or using leverage, or any other financing arrangement, and (ii) use it freely in commerce (both within and away from any particular platform) no later than 28 days from the date of the transaction,” the statement outlined.
Participants have three months to issue their thoughts on the proposals, which also include “(2) the offeror and counterparty seller (including any of their respective affiliates or other persons acting in concert with the offeror or counterparty seller on a similar basis) not retaining any interest in or control over any of the commodity purchased on margin, leverage, or other financing arrangement at the expiration of 28 days from the date of the transaction,” the CFTC noted.
Such clarification is widely believed to be a way for the agency “to crack down on so-called ‘bucket shop’ outfits that take retail investors’ cash fraudulently claiming to plow it into a virtual currency, but no underlying transaction actually takes place,” Reuters stressed.
CFTC Launches Gloomy Bitcoin Website, Podcast
Friday also saw another first, a CFTC webpage dedicated exclusively to bitcoin. It aims to provide online “resources for market participants and customers on virtual currency and the CFTC’s role in oversight of this emerging innovation.”
It boasts a podcast, CFTC Talks, for which production values leave much to be desired. Its maiden episode is a roundtable of CFTC directors discussing existing and coming bitcoin futures. They each read banal introductions as to their purpose, and every participant sounds as if they’re directing flight traffic above a very large international airport. The host is also very excited about everything.
The website includes a primer on bitcoin as well as the ominously titled, Understand the Risks of Virtual Currency Trading. The one and a half page oddly formatted document warns: “Virtual currencies are commonly targeted by hackers and criminals who commit fraud. There is no assurance of recourse if your virtual currency is stolen. Be careful how and where you store your virtual currency.”
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