Nearly two-and-a-half years after the CFTC officially declared that bitcoin and cryptocurrencies more broadly would be regulated like securities, a federal judge has ruled that the agency does, in fact, have the authority to regulate the fledgling asset class, according to the same rules governing energy and metals, effectively defining cryptocurrencies as commodities.
US District Judge Jack Weinstein ruled that the CFTC had the standing to bring a fraud lawsuit against New York resident Patrick McDonnell and his company Coin Drop Markets, permitting the case to move forward. Weinstein also preemptively barred McDonnell and CDM from engaging in commodity transactions, according to coindesk.
“Virtual currencies are ‘goods’ exchanged in a market for a uniform quality and value. … They fall well within the common definition of ‘commodity’,” the judge wrote in the order on Tuesday.
In the lawsuit, the CFTC alleged that McDonnell and his company had fraudulently offered customers virtual currency trading advice beginning in January 2017. After customers handed over their money, instead of passing along his advice, McDonnell took down the company’s website and stopped responding to customers, the CFTC alleged. CDM also failed to register with the CFTC. McDonnell took down the company’s website and stopped responding to customers. McDonnell, who is representing himself in the case, declined to comment to Reuters.
At issue in the case was whether the CFTC had the authority to regulate cryptocurrency as a commodity in the absence of federal level rules, and whether the law permitted the CFTC to “exercise its jurisdiction over fraud that does not directly involve the sale of futures or derivative contracts,” according to the document.
In both instances, Weinstein answered in the affirmative, meaning the case can be brought against the defendant.
The CFTChad defined cryptocurrencies as commodities as far back as 2015, a decision that has led the agency to recently target cryptocurrency businesses that it considers are hoaxing investors.