Since the introduction of Bitcoin in 2009, digital assets known as cryptocurrencies (cryptos) have become increasingly commonplace, with more than one new cryptocurrency being introduced daily. This nascent asset class poses considerable regulatory challenges because statutes written decades ago make no reference to virtual currencies. Instead, regulators must apply existing statutes by interpreting them appropriately and “keeping pace with technological change.” J. Christopher Giancarlo, Chairman, U.S. CFTC, Remarks at the Sims Lecture at Vanderbilt Law School: Derivatives Regulatory Reform: A Principles-Based Software Upgrade (Apr. 13, 2018).
As of yet, there is no “direct, comprehensive Federal oversight of underlying Bitcoin or virtual currency spot markets.” U.S. CFTC, CFTC Backgrounder on Oversight of and Approach to Virtual Currency Futures Markets (Jan. 4, 2018). However, the U.S. Commodity Futures Trading Commission (CFTC), whose mission includes protecting “market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act (CEA),” has emerged as the main federal regulator of virtual currencies. LabCFTC, A CFTC Primer on Virtual Currencies (Oct. 17, 2017). The CEA interprets the term commodity broadly to include “traditional agricultural commodities, metals, and energy, [and] . . . Treasury securities, interest rate indices, stock market indices, currencies, electricity, and heating degree days, to name just a few underlying products.” Timothy Massad, Chairman, U.S. CFTC, Testimony Before the U.S. Senate Comm. on Agric., Nutrition & Forestry (Dec. 10, 2014).
In this article, we describe the CFTC’s actions to regulate virtual currency spot markets (in which virtual currencies are traded for immediate delivery) and virtual currency derivatives markets (e.g., futures swaps and options related to such currencies).