Federal Judge: Cryptocurrencies are commodities and thus subject to regulation by the U.S. Commodity Futures Trading Commission (CFTC)

For the first time, a federal judge has upheld that Bitcoin and other cryptocurrencies are commodities and thus subject to regulation by the U.S. Commodity Futures Trading Commission (CFTC).


U.S. Federal Judge from the Eastern District of New York, Jack Weinstein, ruled on Tuesday that cryptocurrencies should be treated as commodities, reports CNBC.

The ruling is a landmark as this is the first time that a court upheld the CFTC’s jurisdictional assertion over cryptocurrencies like Bitcoin. Previously, the CFTC had stated that cryptocurrencies should come under the scope of the commodities regulator.

“CFTC holds that bitcoin and other virtual currencies are a commodity covered by the commodity exchange act,” the agency said in a statement back in September 2015.

Now, the ruling adds some much-needed clarity to cryptocurrency, as well as its related futures and derivatives markets, which launched at the end of last year.



The defendant in the given case was Patrick K. McDonnell of Staten Island, New York, and Coin Drop Markets (CDM), a New York corporation, which was never registered with the CFTC.

“The CFTC Complaint alleges that from approximately January 2017 to the present, McDonnell and CDM engaged in a deceptive and fraudulent virtual currency scheme to induce customers to send money and virtual currencies to CDM, purportedly in exchange for real-time virtual currency trading advice and for virtual currency purchasing and trading on behalf of the customers under McDonnell’s direction,” reads the official lawsuitannouncement.

The regulator claims that CDM’s customers never received the trading advice they paid for and that McDonnell eventually stopped responding to customers and took down the company’s website.

In result, Weinstein issued a preliminary injunction against the defendant, preventing CDM from further business activity. But more importantly, Weinstein upheld CFTC’s statement from 2015 that cryptocurrencies are commodities, noting that the CFTC had broad leeway in interpreting federal law regulating commodities.

Back in January 2018, CFTC Chairman J. Christopher Giancarlo, told the Senate Banking Committee on cryptocurrency and blockchain regulation, saying:

[T]he CFTC does NOT have regulatory jurisdiction over markets or platforms conducting cash or ‘spot’ transactions in virtual currencies or over participants on those platforms […]

CFTC only has enforcement jurisdiction to investigate and, as appropriate, conduct civil enforcement action against fraud and manipulation.

It appears that is exactly what the CFTC is now doing.

Bloomberg Photos Review Of 2013


Is bitcoin a currency designed to facilitate commerce, or is it a commodity that has intrinsic value, which rises and falls according to supply and demand?

A currency can be treated as a commodity, being bought and sold to take advantage of fluctuations in its value relative to other currencies and assets. But its primary purpose is to facilitate exchange within and between societies. The alternative exchange mechanism is barter, in which the price of a pair of shoes is defined relative to other unique items, from corn to books and beyond.

The problem with this is that without a common currency that provides an understandable valuation of each item, the process of trade, from investment to purchasing food, slows with major consequences for the economy. Alternatively, a currency arises with an exchange value separate from its use value. One example is gold GCQ8, -0.26%  , whose use value is somewhat limited, while its exchange value has been much higher, providing a stable basis for commerce.

Relative stability in the price of the currency is essential. If it fluctuates wildly and consistently, then it becomes a less efficient pricing mechanism for exchange. Prices always swing up and down, but their fluctuation cannot be so great that buyers and sellers hesitate to set prices for goods and services denominated in that currency, as the currency is then no longer a reliable store of value. Currencies have on occasion plunged in value, causing economic paralysis and political chaos. They rarely soar in value overnight.

There are many who argue that the contemporary currencies, not backed by a fixed amount of gold, are not stores of value. But currencies are backed by the degree to which owning the currency enables you to enter the market of the nation that issues that currency and purchase goods and services at will. It is guaranteed by the fact that its price is sufficiently stable, moving by a few percentage points relative to other currencies, and by the fact that the U.S. dollarDXY, +0.14%  can be turned into any item in the American economy at will and also transported out of the country. The dollar is the world’s reserve currency in part because the U.S. constitutes about a quarter of the world’s economy. The dollar therefore provides access to the largest market of goods and services that have use value, and therefore exchange value.

Bitcoin has not behaved anything like a currency. The recent surge in its value creates massive uncertainties. For example, should traders postpone sales of goods and services sold through bitcoin because they might receive a higher price for the same number of bitcoins tomorrow? Should buyers put off purchases to wait for the value of bitcoin to decline? Are bitcoins, like traditional currencies, divisible into smaller denominations to allow for variations in prices? These are questions that a healthy currency doesn’t pose to its users. There are fluctuations in value but ideally not to the point that all purchases become gambles.

Bitcoin has been behaving more like a commodity. Commodity values can surge — although usually not like this — and while commodities can be bartered, in general they are not used as currencies. If bitcoin is indeed a commodity, the next question to be asked is: What commodity is it? A commodity is an object with use value. That use value creates an exchange value, which is modified by market expectations.

Bitcoin’s value is determined entirely by market expectations. The dollar’s value is stated relative to goods and to other currencies. Bitcoin’s value is defined only relative to the dollar. But the key is that bitcoin as a commodity has only an exchange value. It represents no underlying object with use value.

Obviously, any object can have value if others are willing to purchase it. Some purchases may be made in bitcoins, but given the hourly fluctuation in its value relative to the dollar, it might not be prudent. It is extremely difficult to use bitcoin as a currency, since the price of goods valued in bitcoin is at the moment rising dramatically.

Many seem to have made fortunes in bitcoin.

Commodity markets are now trading in bitcoin futures. Brokers will allow bets on anything because they are bookies and take a cut of every transaction, whether the value of the thing being traded rises or falls. Brokers create markets, and the market they are creating is for a commodity that exists only as digital code. Its value, like that of the dollar, is its ability to use bitcoins to purchase things. That depends, in the U.S. at least, on the willingness of owners of things to accept bitcoins. And that in turn depends on bitcoin’s stability.

Bitcoin is neither fish nor fowl, and its advocates argue that that is its virtue. I have trouble seeing the virtue, but it may be there. But both pricing it as a commodity when no commodity exists and trying to make it behave as a currency seem problematic.

A quote from MarketWatch Journalist George Friedman

The problem with bitcoin is not that it is not issued by the government, nor that it is unregulated. The problem is that it is hard to see what bitcoin really is.

As the financial crisis of 2008 proved, banks are not above abusing trust to line their own pockets.

That’s what led to the development of cryptocurrencies like Bitcoin in 2009

The key to its success is something called the blockchain. The blockchain is a means of solving the double-spending problem: which is that because the currency is digital it is open to being copied and spent more than once – something banks stop with physical currency.

However, the blockchain acts as a digital ledger, whereby every single transaction (called a block) is securely linked together using cryptography and encryption. It’s verifiable, available to everyone who owns Bitcoin and is immune to fraud and hacking – unlike centralised banks.

It enables one digital wallet (that can be stored on a phone) to directly connect with another securely and process a transaction.

As such, it removes the need for any kind of traditional bank or regulator.


Big Banks want to destroy Bitcoin before it destroys them

Banks underlying fear of bitcoin boils down to this irrefutable truth: They fear they can be replaced.  Bitcoin can potentially make central banks obsolete

Bitcoin, the “people’s currency,” has the potential to become a new currency, free of the control of big governments and big banks. Full article in Forbes 


Of course, for bitcoiners, such dismissiveness by bankers reached its nadir with JP Morgan Chase’s Jamie Dimon’s widely published remarks.

“If you’re stupid enough to buy [bitcoin], you’ll pay the price for it one day,” he said. Mr. Dimon also referred to it as “a fraud,” a concern echoed throughout legacy banking, money laundering being a chief concern.

JP Morgan calls Bitcoin fraud, then buys the shit out of it.

A Brief Summary Of Our “Trustworthy Banks”

… And Why Their Concern Over “Risks It Poses Consumers” Is Utter Horseshit

See: The Big Banks Are Corrupt — and Getting Worse

The Justice Department’s latest settlement with felonious big banks was announced this week, but the repercussions were limited to a few headlines and some scattered protestations.

That’s not enough. We need to understand that our financial system is not merely corrupt in practice. It is corrupt by design – and the problem is growing.

Let’s connect the dots, using news items from the past few weeks:

The latest sweetheart deal

Four of the world’s biggest banks pleaded guilty to felony charges this week, agreeing to pay roughly $5.6 billion in fines for fixing the price of currencies on the foreign exchange market.

Four of the world’s biggest banks.. All four banks of these banks are repeat offenders with long records of serial fraud, as even this outdated graphic shows.


A fifth bank, UBS, was forced to give up a deferred prosecution deal as a result of its involvement in currency exchange fraud. In “deferred prosecution” agreements the Justice Department agrees not to prosecute a bank for crimes it has committed, if it keeps a promise not to commit those crimes again. It was not clear whether this would lead to any real-world consequences for the bank, however.

In yet another related story, Bank of New York Mellon Corporation agreed to pay $180 million to settle a foreign exchange-related class-action lawsuit. This followed a $714 million settlement for writing pension funds and other institutional clients by overcharging them for currency transactions.


J.P. Morgan Chase – again

This one seemed to slip through under the public’s radar. In a development that will trigger severe déjà vu for anyone who’s been following the big banks’ foreclosure scandals, the serially criminal J.P. Morgan Chase agreed on March 3 to pay more than $50 million over “robo-signed” documents – that is, documents which the bank fraudulently submitted to courts in mortgage-related hearings.

From the Wall Street Journal:

“ … Bank officials admitted to filing more than 50,000 payment-change notices that were improperly signed, under penalty of perjury, by persons who hadn’t reviewed the accuracy of the notices, according to Justice Department officials.”

Telling a court you’ve reviewed a document when you haven’t? That’s perjury.

The Journal also noted that the Justice Department found that “more than 25,000 notices were signed in the names of former employees or of employees who had nothing to do with reviewing the accuracy of the filings.”

Again: perjury.

Many people lost their homes unjustly as a result of this mass-produced fraud. The practice was so widespread at J.P. Morgan Chase that it required the hiring of untrained college-aged temps – referred to within the organization as “Burger King kids“ – to generate all the fraudulent paperwork.

This is where we’re obliged to insert a sentence that has long been superfluous when reporting on deals of this kind:

The Justice Department did not announce the indictment of any individual bankers for the crimes which led to this settlement.


Corrupt, and getting worse

Bankers are becoming even more unethical – and banks are making it harder to report ethical lapses to the authorities. The percentage of bankers who believed their own colleagues had engaged in illegal or unethical behavior has nearly doubled since 2012. And more than one-third of those earning $500,000 or more annually said they had first hand knowledge of wrongdoing in the workplace.

The Labaton Sucharow study illustrates something important: Crooked bankers aren’t born. They’re made.

According to the report, “Nearly one-third of respondents (32%) believe compensation structures or bonus plans in place at their company could incentivize employees to compromise ethics or violate the law. “

In fact, bankers’ bonuses do incentivize unethical and criminal behavior – and anything else it takes to generate profits. “Clawbacks” for ill-gotten gains are still few and far between. Remarkably few bankers have been fired for the widespread fraud that continues to characterize their industry. Prosecution for criminal behavior is extremely rare.

A system which rewards antisocial behavior begets social tragedy. It’s also a law enforcement nightmare. Criminology teaches that the presence of reward for criminal behavior, along with the absence of deterrence, almost inevitably leads to more crime.


JPMorgan Chase itself (not merely Bear Stearns or Washington Mutual, two banks that it bought at the height of the crisis) knowingly packaged shoddy mortgages into securities that did not meet its credit standards and then sold them off to investors.

A JPMorgan Chase banker turned whistle-blower, who’d told the team about what was going on. She had also detailed how, before the crash, her warnings about continuing to package up the bad mortgages into securities and sell them off as investments had gone unheeded by her superiors.

In November 2013, as part of a deal that kept Wagner’s complaint from becoming public—and the specifics of Fleischmann’s revelations from being widely disseminated—JPMorgan Chase agreed to a $13 billion settlement with various federal and state agencies, then the largest of its kind.

Instead of presenting a detailed picture of JPMorgan Chase’s misdeeds—as would have happened had Wagner’s complaint been filed and the matter adjudicated in court—the government and the bank negotiated an anodyne 11‑page “Statement of Facts” that glossed over many of the details of the behavior Fleischmann was trying to stop, and did not name any JPMorgan Chase bankers.

The Justice Department reached agreements with other Wall Street banks, among them Citigroup and Bank of America, using a similar playbook: Threaten public disclosure of behavior that looks criminal and then, in exchange for keeping it sealed, extract a huge financial settlement. No one individual, or group of individuals, is held accountable. No predawn raids of Park Avenue apartments are made. No one gets arrested. No one gets publicly shamed.


Wells Fargo 2016 scandal over assertions that bank employees opened accounts without customers’ authorization.

Here’s a timeline of key events since the allegations came to light:

Sept. 8, 2016

The alleged misconduct was revealed when the Consumer Financial Protection Bureau(CFPB), the Los Angeles City Attorney and the Office of the Comptroller of the Currency (OCC) fined the bank $185 million, alleging that more than 2 million bank accounts or credit cards were opened or applied for without customers’ knowledge or permission between May 2011 and July 2015.

Sept. 26, 2016

Two former Wells Fargo employees filed a lawsuit against the bank related to the accounts scandal. The plaintiffs are seeking class-action status for the lawsuit.

The suit, filed on Sept. 22 in California Superior Court by former employees Alexander Polonsky and Brian Zaghi, seeks to represent employees or former employees who worked for the bank during the last 10 years and who, the suit alleges, were “either demoted, forced to resign, or terminated,” for not meeting “impossible” quotas the bank set as goals for employees to open accounts on behalf of customers.

Ok we think you got the point.

And these are the Institutions trying to tell us as consumers “what is safe for us”


Masters’ remarks follow a slew of negative comments on Bitcoin by financial brass just over the course of this month.

okp66FDEuropean Central Bank executive board member Yves Mersch said Bitcoin is “not money” and like “Mr. Ponzi’s schemes” at the Official Monetary and Financial Institutions Forum in London. The general manager for the Bank of Settlements, Augustin Carstens, said Bitcoin is a “combination of a bubble, a Ponzi scheme and an environmental disaster” at a lecture at Frankfurt University. And World Bank president Jim Yong Kim also said Bitcoin was a Ponzi scheme at an event in Washington, Bloombergreports.

Charlie Munger, the 94-year-old vice chairman of Berkshire Hathaway, has even called Bitcoin a “noxious poison” the government needs to regulate during a shareholder meeting earlier this month for the Daily Journal, a publishing firm where he serves as chairman and director, Business Insider reports.

JP Morgan CEO Jamie Dimon faced backlash for calling Bitcoin “a fraud,” which he has since apologized for. The remark triggered a market abuse lawsuit by algorithmic blockchain liquidity provider Blockswater for alleged violation of Article 12 of the European Union’s Market Abuse Regulation.



Startups focused on products and services based on bitcoin have never had an easy time opening bank accounts – or maintaining positive relationships with those firms.

The problem? Bitcoin-related clients are frequently viewed as high-risk by banking institutions, and thus far few banks have shown an interest in going through the process of mitigating that risk.

This is a long-standing issue that has sparked controversy in the past, but given the broader issue of de-risking by banks worldwide, it’s perhaps unsurprising that bitcoin startups would find themselves in the crosshairs of bank compliance departments.

Yet those risks haven’t kept every bank from opening its doors to bitcoin startups. Silvergate Bank, based in La Jolla, California, was one of the earliest institutions to buck that trend.

Silvergate is on the verge of opening its sixteenth bitcoin bank account, and its chief executive officer, Alan Lane, says the benefits of his bank’s early adopter status might be in jeopardy.

Lane told CoinDesk:

“If other banks are shying away from this, it probably wouldn’t be that difficult to generate business if they could create a compliance process that worked.”

The process of developing this kind of more inclusive compliance process – and as a result helping to ease concerns over the perceived risk of bitcoin businesses – began in 2013, according to Lane, who previously oversaw Silvergate’s manufacturing and retail accounts, ranging in size from $10m to $50m in annual revenue.

See: Silvergate’s CEO is Banking 15 Bitcoin Companies


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