Digital currencies gain status of official commodity

Digital currencies have gained the status of an official commodity in the US after the Commodity Futures Trading Commission (CFTC) said that bitcoin operators needed to immediately ensure their companies were legally registered under the applicable trading laws and regulations.

The decision, published yesterday meant transactions made in cryptocurrencies would need to comply with CFTC regulations and the governing legislation, the Commodity Exchange Act.

Under Section 4c of the Act and Part 32 of the regulations, bitcoin operators in the US would now be required to be registered as a Swap Execution Facility or a Designated Contract Market.

"In the Order, the CFTC for the first time finds that bitcoin and other virtual currencies are properly defined as commodities," the CFTC's decision said.

"While there is a lot of excitement surrounding bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets," said CFTC director of Enforcement Aitan Goelman.

The Australian Taxation Office (ATO) had in a similar move last year called for bitcoin being treated as barter; however, the Senate last month called for bitcoin to be instead made an official currency.

Meanwhile, the Commonwealth Bank of Australia (CBA) along with banks worldwide, including Barclays and the Royal Bank of Scotland, was looking the potential use of bitcoin technologies to drive global finance and create secure online payment services.

The consortium of banks had recruited New York financial technology company R3 to design and develop "distributive ledger" technologies based on the block chain system that facilitated bitcoin trading.

While market participants had long discussed whether Bitcoin could be defined as a commodity, and the CFTC had long pondered whether the cryptocurrency fell under its jurisdiction, the implications of this move were potentially numerous.

With the auction, the CFTC asserted its authority to provide oversight of the trading of cryptocurrency futures and options, which would now be subject to the agency's regulations. In the event of wrongdoing, such as futures manipulation, the CFTC would be able to bring charges against bad actors.

If a company wanted to operate a trading platform for Bitcoin derivatives or futures, it would need to register as a swap execution facility or designated contract market.

Barclays will become the first UK high street bank to accept bitcoin later this year. (See: Barclays to be first UK bank to accept bitcoin).