A decision this week from a New York federal district court ruling that the U.S. Commodity Futures Trading Commission (CFTC) had jurisdiction to regulate a cryptocurrency business represents the first opinion from a federal court affirming the CFTC’s jurisdiction to regulate virtual currency spot and derivative markets.
The decision raises the possibility of jurisdictional tension between the CFTC and the SEC, which has recently brought a number of civil enforcement actions against virtual currency issuers premised on the theory that the virtual currency in question is an unregistered security. A finding that a given virtual currency is, in fact, a commodity—rather than a security—could deprive the SEC of jurisdiction over that issuer, and vice versa with respect to instances in which a currency is deemed a security. Another possibility is that a particular virtual currency with limited or no early utility might constitute a security at the time of its issuer’s initial coin offering but later evolve into a commodity once its utility is established, thereby creating the prospect that both the SEC and CFTC could have jurisdiction over a single virtual currency at different times in its market lifecycle.
For more on the decision, see Ballard’s legal alert.