LabCFTC Releases Primer on Virtual Currencies without Broadly Addressing Blockchain Tokens

by McDermott Will & Emery

McDermott Will & Emery

In Depth

On October 17, 2017, the Commodity Futures Trading Commission’s LabCFTC recently released “A CFTC Primer on Virtual Currencies” (the Primer). LabCFTC was launched by the CFTC in May 2017, as the “focal point for the CFTC’s efforts to promote responsible FinTech innovation and fair competition.” LabCFTC was “designed to make the CFTC more accessible to FinTech innovators … to inform the Commission's understanding of new technologies… [and as] an information source for the Commission and the CFTC staff on responsible innovation that may influence policy development.” It is notable that LabCFTC’s first publication, in PowerPoint format, addresses virtual currency and related issues; however, the first publication states that the Primer “is not intended to describe the official policy or position of the CFTC, or to limit the CFTC’s current or future positions or actions.” 

The Primer is divided into three sections: first, it provides an overview of virtual currencies and potential uses of virtual currencies and blockchain technologies; second, it discusses the role of the CFTC in respect to virtual currency and related permitted and prohibited activities; and third, it notes the risks of virtual currencies. It does not, however, offer any insight into the CFTC’s view on the breadth of the definition of “virtual currency” or on whether any particular types of transactions involving blockchain tokens will be subject to CFTC jurisdiction.
To define virtual currency, the Primer refers to and imports the Internal Revenue Service (IRS) definition from IRS Notice 2014-21: “a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value… In some environments, it operates like ‘real’ currency … but it does not have legal tender status” in the US Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as ‘convertible’ virtual currency; the Primer cites Bitcoin as one example of a convertible virtual currency. Though the Primer cites the IRS definition, it expressly disclaims that the CFTC is adopting that definition; it “is instead offered as an aid to enhance public understanding of virtual currencies.” 
Sample Potential Use Cases of Blockchain Technology. The Primer recognizes that blockchain or distributed ledger technology can be used within public and private systems in a wide variety of applications, including by financial institutions for trading and payment platforms, regulatory reporting, compliance with know your customer and anti-money laundering requirements, by governments for general records management and regulatory reporting and oversight, and cross-industry, for smart contracts, resource and asset sharing agreements and proof of identity when entering into a contract. The examples do not, however, make clear whether the CFTC considers all digital asset represented on blockchains to fall within the definition of virtual currency, or otherwise to be a commodity.
Role of the CFTC
Virtual Currencies are Commodities; Jurisdiction of the CFTC. The Primer notes that the definition of commodity included in the Commodity Exchange Act is broad, and can include a physical commodity such as an agricultural product or a natural resource, a currency or interest rate, and includes “all services, rights, and interests … in which contracts for future delivery are presently or in the future dealt in.” The CFTC first found that Bitcoin and other virtual currencies are properly within the ambit of “commodity” in 2015. The CFTC has oversight over futures, options and derivatives contracts and its jurisdiction is implicated “when a virtual currency is used in a derivatives contract, or if there is fraud or manipulation involving a virtual currency traded in interstate commerce.”
Initial Coin Offerings, Virtual Tokens and CFTC Oversight. The Primer mentions that the Securities and Exchange Commission (SEC) last summer released a Section 21(a) report on the DAO tokens, determining that those particular tokens met the definition of “security” under the federal securities laws. The Primer asserts that “there is no inconsistency between the SEC’s analysis and the CFTC’s determination that virtual currencies are commodities and the virtual tokens may be commodities or derivatives contracts depending on the particular facts and circumstances.” The CFTC “looks beyond form and considers the actual substance and purpose of an activity when applying the federal commodities laws and CFTC regulations.” 
Accordingly, both the CFTC and SEC have now announced that they will consider these issues on a case-by-case basis, depending on the particular facts and circumstances. Coinbase’s Securities Law Framework provides guidelines in applying existing regulation to each blockchain project’s facts and circumstances. It is important to note that depending on the structure of a transaction or platform, both the CFTC and SEC could assert overlapping jurisdiction, based on facts and circumstances and each Commission’s interpretation of its statutes. In other words, being subject to the jurisdiction of the CFTC does not insure that there will be no SEC regulatory implications and vice versa.
The “Risks” section of the Primer is structured by the CFTC as a series of warnings to investors and includes several risks, as follows.
Operational Risks. The Primer acknowledges that the virtual currency market has many platforms for converting one type of virtual currency into another currency, or into fiat currency. However, the CFTC cautions that many of these platforms are not subject to the supervision that applies to regulated exchanges and may be missing critical system safeguards and customer protection related systems. 
Cybersecurity Risk. Virtual currency may present cybersecurity risk since some platforms may commingle customer assets in shared accounts, which can affect whether and how the currency can be withdrawn, and may be vulnerable to hacks, resulting in the theft of virtual currency and the loss of customer assets.
Speculative Risks. Virtual currency may present speculative risk since, among other things, the market has been subject to substantial volatility and may be subject to price manipulation.
Fraud and Manipulation Risk. The Primer also cautions against the risk of fraud and manipulation.


The Primer represents another regulator contribution to the world of blockchain tokens. For blockchain projects that create tokens, we reiterate our often expressed view that the features and functions of the platform and the tokens must be analyzed carefully when determining which regulatory regime(s) apply. In other words, the context determines the regulation. 

Finally, (and most importantly) don’t commit fraud.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McDermott Will & Emery | Attorney Advertising

Written by:

McDermott Will & Emery

McDermott Will & Emery on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.