The U.S. Commodity Futures Trading Commission (CFTC) proposed regulations that will curb unlicensed bitcoin futures trading within the country.
The proposed regulations, announced by the CFTC on Friday, explicitly place bitcoin and other cryptocurrencies under the framework for “actual delivery” that currently governs the purchase of physical commodities such as gold and oil.
Under this framework, exchanges and traders must demonstrate an ability to physically deliver the commodities to their owners within 28 days of purchase. Otherwise, the purchase constitutes a futures contract and is subject to a litany of other regulations governing futures trading.
The full text of the proposed regulatory language has been reproduced below
(1) a customer having the ability to: (i) take possession and control of the entire quantity of the commodity, whether it was purchased on margin, or using leverage, or any other financing arrangement, and (ii) use it freely in commerce (both within and away from any particular platform) no later than 28 days from the date of the transaction; and
(2) the offeror and counterparty seller (including any of their respective affiliates or other persons acting in concert with the offeror or counterparty seller on a similar basis) not retaining any interest in or control over any of the commodity purchased on margin, leverage, or other financing arrangement at the expiration of 28 days from the date of the transaction.
The key point in the proposed language is that the seller may not retain “any interest in or control over any of the commodity” for more than 28 days following the date of the transactions. According to a 23-page document (PDF) accompanying the proposed regulations, this includes exchange-controlled deposit wallets where the trading platform operators — not the traders — retain control of the private keys.
Although the CFTC has long classified bitcoin as a commodity, the physical delivery provision was a thorny issue for cryptocurrency market participants because bitcoin does not exist as a physical entity.
Last year, the CFTC reached a $75,000 settlement with overseas exchange Bitfinex after the commission found that the exchange continued to hold the purchased bitcoins in exchange-controlled wallets after the actual delivery exception expiration date.
The Bitfinex case highlights an important point regarding the extent of the commission’s jurisdiction. The regulations would not just apply to U.S.-based exchanges, but also foreign trading platforms that provide services to Americans. Consequently, this regulatory guidance could lead overseas exchanges that offer margin trading to further restrict access to U.S. residents.
The CFTC will accept public comments on the proposed bitcoin regulations for 90 days, a period that will commence following their publication in the Federal Register.