The CFTC’s Complaint in this matter[1] is based on a charge of defrauding customers with respect to purported trading of Bitcoin in violation of the anti-fraud provisions of the Commodity Exchange Act and the CFTC’s rules.

I write separately (as I have before[2]) to ensure the public is not misled to believe that the CFTC regulates cash or “spot” transactions in Bitcoin or other digital assets.  It does not.  The CFTC does not regulate Bitcoin (or any other cash digital asset transactions). 

Because this point seems to be confused from time to time, I want to be very clear that the CFTC regulates derivatives (e.g., futures contracts, options, swaps) associated with underlying commodities, but not the underlying commodities themselves.  In other words, the CFTC regulates futures on Bitcoin because Bitcoin is a commodity – but the CFTC does not regulate Bitcoin itself (much like the CFTC regulates cattle futures because cattle are commodities, but it does not regulate the sale of cattle at auction barns throughout the country).

While the CFTC does not regulate cash commodities, it does have authority to prosecute enforcement actions in cases of fraud or manipulation involving cash commodities – including Bitcoin (as here).  That is, where cash commodities are concerned, anti-fraud and anti-manipulation enforcement authority (as opposed to day-to-day regulatory oversight) is bestowed upon the CFTC as a tool to assist in its primary function of regulating derivatives products, such as futures.  However, the CFTC is not in the business of regulating Bitcoin transactions or the individuals or entities that buy, sell, trade, transfer, or store Bitcoin.

As a result, those who seek to trade Bitcoin cannot rely upon the protections afforded by CFTC regulation and oversight.  The CFTC should be very clear about that so as not to give the public a false sense of security that when they engage in cash transactions involving Bitcoin or other digital assets, they enjoy the protection of CFTC regulatory oversight.  They do not. 

If the CFTC is to fulfill its customer protection mission, it must make this clear whenever it takes enforcement action involving digital assets:  The CFTC does not regulate cash or spot transactions involving digital assets such as Bitcoin (or any other cash commodity), or those who buy, sell, or engage in activities relating to digital assets (or any other cash commodity).