Virtual money is officially a commodity, just like crude oil or wheat.
So says the Commodity Futures Trading Commission (CFTC), which on Thursday announced it had filed and settled charges against a Bitcoin exchange for facilitating the trading of option contracts on its platform.
"In this order, the CFTC for the first time finds that Bitcoin and other virtual currencies are properly defined as commodities," according to the press release.
While market participants have long discussed whether Bitcoin could be defined as a commodity, and the CFTC has long pondered whether the cryptocurrency falls under its jurisdiction, the implications of this move are potentially numerous. – Bloomberg Business, Sept. 17, 2015
Bitcoin promoters who long for recognition got their wish last week. It is not an official currency, nor is it likely to become one. The cryptocurrency is an official commodity, though. Whether this is good news remains to be seen.
The designation resulted from a Commodity Futures Trading Commission ruling against Bitcoin exchange Coinflip. The CFTC had charged Coinflip with illegally operating a Bitcoin options platform called Derivabit.
Why was Derivabit illegal? Only because the CFTC has now defined Bitcoin as a commodity under the Commodity Exchange Act. They had not done so when Derivabit launched in 2014. Apparently, their position now is that Derivabit should have been able to read the commission's mind and know that Bitcoin would someday become a regulated commodity.
The commission's director of enforcement, Aitan Goelman, had this to say.
"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."
Ignorance of the law (that does not yet exist) is no excuse. Innovation is no excuse, either. This is ludicrous but typical bureaucracy. Now that everyone knows the rules, what is the impact on Bitcoin?
The CFTC regulates commodity futures, options and related derivative instruments. It does not regulate transactions in the underlying commodities. It appears the ruling does not affect existing Bitcoin wallets, exchanges or transactions.
The ruling will affect other instruments derived from Bitcoin, i.e., options or futures contracts. Those transactions in the U.S. will now have to occur on a regulated commodity exchange. CME Group is the largest such exchange operator, but smaller bitcoin exchanges can apply for the same status.
This development isn't completely negative. It is a sign Bitcoin is gaining wider acceptance as it matures. Government was never going to let it by without a fight. They can say innovation is no excuse, but they still can't stop it. At best, they can slow innovation down.