In a series of 2015 decisions, the CFTC determined that virtual currency is a commodity subject to its jurisdiction.
In a 2016 settled enforcement action, the CFTC took the position that an unregistered platform administering and providing margin trading contracts in crypto-currencies to non-eligible (“retail”) users violated the provisions of the Commodities Exchange Act, In the Matter of BFXNA, Inc. d/b/a Bitfinex, No. 16-19 (CFTC Jun 2, 2016), where:
Bitfinex controlled the keys to the customer and escrow wallets involved in the margin lending.
Bitfinex used book-entry delivery, instead of actual delivery is required as between buyer and seller:
“[P]hysical delivery of the entire quantity of the commodity, including the portion purchased using leverage, margin, or financing, into the possession of the buyer, or a depository other than the seller, the seller’s parent company, partners, agents, and affiliates will satisfy the actual delivery exception, provided that the purported delivery is not a sham.” Id. at 5.
Bitfinex was the platform that controlled the Omnibus Settlement Wallet, and later changed its platform to settle through third-party multi-signature wallets, but Bitfinex still retained control of those keys, too (plus the Financing Recipients had no contractual relationship with the third-party wallet providers).
Bitfinex had capacity to force-liquidate the contracts, thus retained control. Id. at 6.
Next, in Part 7: The CFTC’s Proposed Cyber-Currency Interpretation.