Bitcoin currency or commodity marketing

Bitcoin's rise in value has everyday investors wanting to enter the market. That may force authorities to get involved, even if regulating the cryptocurrency is difficult.

Those with some investable cash have been talking around the water cooler about how to access and get rich with Bitcoin. If Bitcoin moves from an almost theoretical instrument of a few to a source of investment for many, authorities may have to take steps to regulate it — even bitcoin currency or commodity marketing difficult as it may be to take those steps. Value in holding Bitcoin or any cryptocurrency is only crystallized when it can be traded for a real currency by a legal means.

This may be because there is a theoretical limit on the number of Bitcoins; the supply is set at 21 million units. The inflation implications of this cap have not been conclusively studied, but the crucial determinant of its price has been the nature of its demand.

Previously, many respected analysts and industry leaders had opined that Bitcoin, as a currency, was inherently spurious, something akin to a Ponzi scheme or fraud. This forcibly compels an accelerated response. Broadly speaking, regulators are tasked with bitcoin currency or commodity marketing investors, maintaining market integrity and fostering the conditions for innovation and competition.

Regulators in a number of jurisdictions are publishing positioning papers and, in some cases, beginning to issue soft rules to manage cryptocurrencies. Each jurisdiction has its own economic and, ultimately, political objectives. To date, much of the official regulatory attention bitcoin currency or commodity marketing been around preventing the use of Bitcoin to fund terror and other illegal bitcoin currency or commodity marketing.

In its Opinion on Virtual Currency, the European Banking Authority identified 70 risks across several categories. It concluded any comprehensive approach would require a substantial body of regulation and it was simply too early to be able to do more than study and monitor developments.

Regulators have thus far said there is little to no impact on the wider economy in terms of direction or overall stability. But it is now becoming clear that Bitcoin does have enormous reputational risk implications. Each time there is any kind of market failure, it knocks confidence in other emerging assets classes and impacts the development of other less controversial and perhaps more socially useful financial developments such as blockchain.

There, however, is the real pressing problem for regulators. Even if does not serve as an alternative to, or ever seriously threatens to replace, traditional currencies, there may still be compelling need to regulate Bitcoin because it starts to become a sizeable alternative to a traded regulated commodity.

That is, if it begins to seriously compete with, say, gold, as an alternative asset class. It does not matter that gold takes a physical form or has incomparable credibility, if Bitcoin has more present speculative potentia l for financial traders.

One reason for that may be they raise some fairly fundamental but inconvenient regulatory and legal questions. These questions are very difficult to answer, as the bitcoin currency or commodity marketing nature of this cryptocurrency is that it is entirely decentralized and its origin story opaque:.

A final overarching question: How can the oversight be structured and intended to work to ensure a level playing field? Why should Bitcoin escape the complex controls and rigorous data collecting and reporting requirements imposed on other regulated asset classes? The philosophical and technical issues are mind-bending even for Nobel Prize winners. A critical bitcoin currency or commodity marketing for policymakers is whether to approach Bitcoin as a legitimate alternative to a traditional currency or a commodity with a use value still bitcoin currency or commodity marketing be determined or simply a form of gambling.

Our latest feature, Are you ready for blockchain?

As interest in bitcoin derivatives has increased, the Commodity Futures Trading Commission CFTC has turned more of its attention toward virtual currencies. For a little more than a year, at least two trading facilities registered with the CFTC have offered bitcoin derivatives for trading in the United States.

Another company plans to offer bitcoin derivatives on its platform and applied in to register a derivatives clearinghouse for bitcoin derivatives.

More recently, the CFTC brought two enforcement actions related to bitcoin derivatives. In In re Coinflip, Inc. Massad and Commissioner J. Christopher Giancarlo each commented on the potential impact of blockchain technology on financial ecosystems.

Many industry observers predict that bitcoin or the blockchain will significantly disrupt existing financial market infrastructures and reshape traditional payment systems, transaction clearing and settlement services, derivatives markets, and other financial market processes that rely on third-party intermediaries. Tellingly, a number of exchanges and investment banks are investing heavily in research related to bitcoin and blockchain applications, according to press reports.

In response, TeraExchange developed its own proprietary index based on a volume-weighted average of bitcoin spot market transactions from multiple bitcoin exchanges. The CFTC staff ultimately did not object to TeraExchange self-certifying the bitcoin contract that settled to the new index. In similar contexts, the CFTC has aggressively investigated and brought enforcement actions related to manipulation of indices comprising spot market transactions.

Whether bitcoin should be regulated as a currency or other form of property is a question that has vexed many U. Transactions in currency are eligible for exemptions from most CFTC regulations if offered in the form of FX swaps or FX forwards between nonretail counterparties. Furthermore, retail customers are prohibited from engaging in off-exchange derivatives transactions except for FX transactions with certain financial institutions such as retail foreign exchange dealers, futures commission merchants, broker-dealers and banks.

Off-exchange FX transactions generally are considered to be subject to lighter regulation than transactions executed on a CFTC-registered designated contract market i. Categorizing bitcoin as an exempt commodity would preclude bitcoin operators from relying on regulatory exemptions for certain FX transactions under the CEA. The Coinflip order clearly suggests that a bitcoin option could satisfy the trade option exemption if the option buyer was a commercial bitcoin user, and therefore, bitcoin could only be an exempt commodity.

This conclusion has other implications as well. Commercial users of bitcoin e. Similarly, as an exempt commodity, forward contracts that result in delivery of bitcoin between commercial market participants could be excluded from the CEA and CFTC jurisdiction. As long as interest in bitcoin derivatives persists, the CFTC is likely to continue to regulate them actively. Bitcoin market participants should be aware that the CFTC could assert itself on a number of fronts that have only an indirect relationship to bitcoin derivatives.

Furthermore, the CFTC is likely to be presented with fresh challenges as new applications for blockchain technology are developed. Many already have speculated that the blockchain could be adapted to significantly enhance efficiencies in collecting margin and collateral on derivatives and for clearing and settling securities transactions.

As with any type of innovative technology, bitcoin derivatives and blockchain applications have the potential to test both the industry and the CFTC in the coming years. This memorandum is considered advertising under applicable state laws. In particular, one should expect the CFTC to focus on whether particular bitcoin derivatives that are listed for trading are not readily susceptible to manipulation — a statutory requirement under the Commodity Exchange Act CEA applicable to all CFTC-registered trading facilities.

Conclusion As long as interest in bitcoin derivatives persists, the CFTC is likely to continue to regulate them actively.