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Cryptos Are Commodities, Rules US Judge In CFTC Case

A U.S. district judge has backed the U.S. Commodity Futures Trading Commission in defining cryptocurrencies as commodities.

According to a Memorandum & Order for a court case that the CFTC had brought against cryptocurrency business operator Patrick Kerry McDonnell, Judge Jack Weinstein from a district court in New York ruled that “virtual currencies can be regulated by CFTC as a commodity.”

“Virtual currencies are ‘goods’ exchanged in a market for a uniform quality and value. … They fall well within the common definition of ‘commodity’,” the judge wrote in the order on Tuesday.

At issue in the case was whether the CFTC had the authority to regulate cryptocurrency as a commodity in the absence of federal level rules, and whether the law permitted the CFTC to “exercise its jurisdiction over fraud that does not directly involve the sale of futures or derivative contracts,” according to the document.

In both instances, Weinstein answered in the affirmative, meaning the case can be brought against the defendant.

The judge further granted a preliminary injunction barring the defendant from further engagement in cryptocurrency investment as the case continues.

As previously reported by CoinDesk, the CFTC defined cryptocurrencies as commodities as far back as 2015, a decision that has led the agency to recently target cryptocurrency businesses that it considers are hoaxing investors.

In one of several cases filed in January this year, the CFTC sued McDonnell and his company CabbageTech for allegedly absconding with customers’ digital assets.

The agency said at the time that McDonnell branded himself as a cryptocurrency investment expert with trading advice that could result in highly attractive returns on investment. Yet soon after customers sent in money and cryptocurrencies, the defendant allegedly misappropriated the funds, according to the case.

CFTC image via CoinDesk archive

See the full Memorandum & Order below:

Memorandum & Order by CoinDesk on Scribd

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A Token to Regulate All Tokens? Messari to Raise ICO in 2018

Some envision an apocalyptic battle between cryptocurrencies and regulators, others foresee blockchain innovations becoming too powerful to be tamed.

But Ryan Selkis, widely known by his Twitter moniker TwoBitIdiot, isn’t devoted to either one of these futures. The founder of Messari, a nascent crypto version of CrunchBase, is more measured – thinking there’s no reason to panic, but that this isn’t a time for complacency, either.

To that end, he announced his solution Tuesday – a crypto token that will seek to protect the industry by pushing it toward self-regulation.

But if a year or more of furiously critiquing ICO practices makes it seem like Selkis is against tokenized crowdfunding, he’s not; in fact, his criticism is directed at making sure a good idea isn’t ruined by bad behavior.

While self-regulation has been a hot topic in the broader crypto industry for some time, it has yet to see a whole lot of pick-up (besides a very recent development in Japan). But, according to Selkis, regulators have been consistent in their approach toward the nascent industry.

After all, there’s no doubt specific regulators like the Securities and Exchange Commission (SEC) have taken a keener interest in the crypto token market as of late. And that’s why Selkis believes now is the time for his concept to shine.

Selkis told CoinDesk:

“If we do something like this, it will certainly be this year, because I think the window is closing on the industry in terms of how long we have to essentially self-regulate without top-down enforcement actions really putting a freeze on token activity.”

A new orthodoxy

Stepping back, Selkis first announced Messari in October, at the time calling the project an open-source EDGAR (the public SEC database for securities) for tokens.

In today’s announcement, he furthered that concept, describing how other self-regulatory bodies have evolved over time to become significant organizations – citing the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA).

But precedent aside, it remains unclear just how to get the crypto industry, which is decentralized, global and so inherently hard to pin down, to come together over the issue.

In the announcement, Selkis wrote:

“I’m confident we could get a decent amount of the way toward self-regulation based on social pressure. But until recently, I didn’t really think there were good enforcement mechanisms or financial incentives to make any self-regulatory efforts reliable.”

Looking ahead, he’s convinced he found that mechanism through a decentralized list attached to an agreed-upon set of standards, all of which is governed by a token.

The model is called a “token-curated registry,” and Selkis acknowledges the idea will only work with broad buy-in crypto’s leading luminaries.

Evangelizing disciples

As such, Selkis, who noted that everything about the idea is still “subject to change,” outlined his vision for the token in today’s blog post.

A token-curated registry is essentially a list vetted by people that hold a token to allow them to control who gets on the list. On Messari’s particular list would be compliant projects funded by ICOs.

Selkis expects the vetted voters to be key stakeholders in the industry – the entities (such as hedge funds, exchanges and advisers) that regulators would hold accountable if investor abuse became widespread.

“As stakeholders, I think there would be intrinsic benefits to owning a stake in a system that greenlights token offerings as abiding by certain minimal levels of transparency and standards,” he said.

To facilitate compliance, token projects would have to make certain disclosures (currently being developed ), such as the critical facts about the token, like the vesting schedule for different groups, commitments to auditing and the token’s economics would need to be detailed on the site.

Selkis sees a future where Messari indirectly reinforces good behavior since stakeholders would become reluctant to work with companies that fail to get on the Messari list.

While there’s a number of companies that gather smaller data sets about token projects today, most of those services are pay-for-access businesses, whereas Messari would be open.

“Siloing data and information in this industry is going to be a losing business model,” said Selkis.

Awaiting scripture

Still, at this stage, those who have been following the Messari project may have noticed we’re still at the idea stage. In fact, the announcement is short on specifics.

There’s no hard cap, no soft cap and no vesting terms. We could even imagine a scenario in which Messari used a unique token, like an ERC-721, but it could also be the simple ERC-20. None of that has been finalized.

In fact, Selkis isn’t even ready to say what kind of legal structure he expects to employ.

This is part of the process. Most projects have to build technology. Besides that, Selkis has to build something much more delicate: buy in.

“There’s still a lot of research and development to do this right,” Selkis said.

But the pressure Selkis feels is not from the regulatory community, here or abroad.

“I think they’ve recognized the challenges and limitations in coming up with top-down regulations,” he said, pointing to the recent testimony by the Commodities Futures Trading Commission (CFTC), where the agency’s chief stated that rule-making should “do no harm.”

Selkis added, “I think they are probably supportive of new technology, provided they are abiding by the spirit of the existing securities and commodities law.”

The pressure he feels, then, is in bringing a truly ecumenical set of voices to the table, a collective powerful enough that new issuers really have to listen, unified around one plan. He explained his deliberate process by saying:

“We’re just not in a rush, because I think this is a one shot deal to get consensus around.”

Disclosure: Ryan Selkis was formerly managing director of CoinDesk.

Church stained glass image via Shutterstock

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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

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CFTC Beefs Up Bitcoin Futures Review Process

The Commodity Futures Trading Commission (CFTC) is developing a “heightened review process” for cryptocurrency futures though it will continue to allow exchanges to self-certify products, Chairman J. Christopher Giancarlo announced last week.

As reported by Reuters, Giancarlo introduced a checklist during a conference speech in Florida pertaining to Designated Market Contracts (DMCs) and Derivatives Clearing Organizations (DCOs). The aim is to assist regulators as exchanges introduce new products around cryptocurrencies into the market.

The chairman’s speech came after some pushback tied to the CFTC’s handling of the December launch of bitcoin futures by the Cboe Global Markets and the CME Group, after which the Futures Industry Association (FIA) expressed concern over potentially having to pay for outstanding bitcoin futures contracts caused by the cryptocurrency’s volatility. The Association claimed it wasn’t sufficiently included in the process and criticized the Commission for allowing exchanges to self-certify their futures products.

Giancarlo’s checklist requires that DMCs set “exchange large trader reporting thresholds at five bitcoins or less”. It also mandates that they must enter into “information sharing agreements with spot market platforms to allow access to trade and trader data” in addition to agreeing to frequent communication with the CFTC regarding trade activities.

Beyond such measures, the CFTC will leave the self-certification process alone, according to Giancarlo.

He was quoted as saying:

“The CFTC’s current product self-certification framework is consistent with public policy that encourages market-driven innovation that has made America’s listed futures markets the envy of the world. Whatever the market impact of bitcoin futures, I hope it is not to compromise the product self-certification process that has served so well for so long”.

Others have been scrutinizing the process as well, including some members of the U.S. Congress.

Yesterday, top Senate Agricultural Committee members sent a letter to Giancarlo requesting information on the CFTC’s oversight of bitcoin futures and options markets. The senators specifically requested information regarding the Commission’s market surveillance and its implementation of safeguards against bitcoin’s volatility.

“American taxpayers deserve strong safeguards against fraud, manipulation, and abusive practices in the futures and options markets,” the letter stated. “The CFTC plays a critical role in protecting customers and the markets from harm.”

Image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.