For the past few years, bitcoin has been the punchline of the joke when it comes to virtual currency. Scandals like Mt. Gox offered ammunition for opponents to say “I told you so” and chide others about the risks of trading made-up money online. Thanks to a new ruling by the U.S. Commodity Futures Trading Commission (CFTC), however, there’s now hope of legitimacy on the horizon — according to the CFTC, bitcoins are now a commodity.
So what does the new classification mean for bitcoin owners, traders and the companies that facilitate these actions? First, the CFTC has now joined other regulators like FinCEN in considering these virtually mined bits of currency as requiring both oversight and regulation. According to CoinDesk, the Trading Commission started down the path to commoditization of bitcoins almost a year ago, and most companies trading bitcoin or its derivatives have been acting under this model for several years.
Bottom line? In order to run any kind of derivative market, businesses must now meet CFTC standards, and the agency has the power to police any kind of bitcoin exchange. While this is a last resort for the CFTC, it does mean that resellers must tread carefully when it comes to setting up shop or collecting cash for transactions since the virtual currency is quickly becoming mainstream, bringing with it both stability and standardization.
Bitcoins are now covered under Section 1a(9) of the Commodity Exchange Act, which includes “all services, rights and interests in which contracts for future delivery are presently or in the future dealt in.” The definition is broad on purpose, giving the CFTC the ability to add new currencies as warranted and prevent companies from playing fast and loose with the rules.
Despite bitcoin’s rocky beginning and issues with currency holders vanishing into thin air, the value of this virtual money has continued to trend upward as its use becomes more widespread. As noted by Bitcoinist, for example, advertising network Adverti recently became the first network of its kind to accept payments in bitcoin as well as established currency, while financial service company Barclays will now accept bitcoin deposits from known charities.
Of course, increased use also breeds potential misuse. According to CryptoCoinsNews, the CFTC has already pursued its first enforcement case against a bitcoin operator, Coinflip, stating that the company and its CFO were not complying with regulations while trading with bitcoins. Coinflip provided options to both buyers and sellers. Because bitcoin is now a commodity, the company should have been registered and compliant with applicable commodity swap laws. A settlement was reached without any penalty to Coinflip.
In effect, this was a trial run for the CFTC to show companies it won’t turn a blind eye to bitcoin malfeasance. According to the CFTC’s Enforcement Division head, Aitan Goleman, the excitement and innovation surrounding bitcoin is no excuse for not playing by the rules.
Bitcoins are now a commodity, putting them one step closer to legitimate currency — but also sharpening and the double edge that comes with the designation: higher value and increased oversight from government agencies.