Stroock Special Bulletin
"Recent Developments in the Regulatory Treatment of Bitcoin"
On September 17, 2015, the U.S. Commodity Futures Trading Commission (“CFTC”) issued an order (the “Coinflip Order”) filing and simultaneously settling charges against Coinflip, Inc. (“Coinflip”) and its chief executive officer. In the Coinflip Order, the CFTC took the view for the first time that bitcoin and other virtual currencies are commodities subject to the Commodity Exchange Act (“CEA”) and CFTC regulations.
Shortly thereafter, on September 24, 2015, the CFTC issued an order (the “Tera Order”) filing and simultaneously settling charges against TeraExchange, LLC (“Tera”), a provisionally registered Swap Execution Facility (“SEF”), arising out of a prearranged wash trade on its SEF platform for trading non-deliverable forward contracts based on the relative value of the U.S. dollar and bitcoin (“Bitcoin Swaps”).
The Coinflip Order and the Tera Order followed the release on September 15, 2015, by the Conference of State Bank Supervisors (“CSBS”) of a Model Regulatory Framework for State Regulation of Certain Virtual Currency Activities, stating that third party control of virtual currency should be subject to state regulatory scrutiny. The following week, on September 23, 2015, the New York Department of Financial Services (“NYDFS”) awarded Circle Internet Financial Inc. (“Circle”) the state’s first “BitLicense,” making it the first company to be licensed to offer digital currency services in New York.
This Stroock Special Bulletin explains the background and implications of these recent developments in the regulatory treatment of bitcoin and other virtual currencies.