Bitcoin Is a Commodity, Not a Currency

According to the CFTC press release, the bitcoin options platform does not comply with the Commodity Exchange Act and CFTC regulations by trading or processing swaps.

This decision came after the commission and the FBI carried out an investigation into the activities of Coinflip, Inc., a company operating Derivabit, a platform which allowed users to easily buy and sell Bitcoin.

This new ruling, published on Thursday, took effect after the CFTC ordered San Francisco-based Coinflip and its chief executive officer Francisco Riordan to shut down Derivabit, an online site that offered to link buyers and sellers of digital currency option contracts.

As such, the CFTC is bringing dealings in Bitcoin, long prized for its anonymity, into the light.

“It addresses one of the most important problems the Bitcoin community has faced, which is security and lack of regulation”, said University of Virginia business professor Peter Rodriguez. The total number of bitcoins that can be produced is limited, making it like gold or other commodities that have been used as currency. From now on, any bitcoin startup that wants to operate a trading platform will have to do so as a registered swap execution market. If every bitcoin transaction is worthy of tax treatment over the fluctuation of the market price of bitcoin, the United States government is essentially begging to make a swath of technologists tax cheats by accident.

“In the order, the CFTC for the first time finds that bitcoin and other virtual currencies are properly defined as commodities”, per the CFTC order. “Every agency looks at Bitcoin from their own point of view”, he explaining, noting that the Internal Revenue Service treats it as property for the purposes of taxes, while the Treasury’s Financial Crimes Enforcement Network views it as a currency for the purposes of preventing money laundering.

This high level of security is what attracted the banks, which besides wanting a piece of the Bitcoin pie, said that blockchain technology could also be used for exchanging other types of information, without having third-parties verify it, all at much lower costs than their current tech, and at much higher speeds.