A New York federal judge recently ruled that cryptocurrencies like Bitcoin are commodities, and that the Commodity Futures Trading Commission (CFTC) can regulate them. The ruling was made in a case the CFTC brought against a cryptocurrency business operator.
Federal Judge Jack Weinstein ruled that “virtual currencies can be regulated by the CFTC as a commodity,” after determining these fall into the definition of “commodity.” His decision was based on a similar determination the CFTC made back in 2015.
In the order, the judge wrote:
“Virtual currencies are ‘goods’ exchanged in a market for a uniform quality and value. … They fall well within the common definition of ‘commodity’.”
At issue was whether the CFTC could regulate cryptocurrencies, given the absence of federal rules, and whether the regulator could “exercise its jurisdiction over fraud that does not directly involve the sale of futures or derivative contracts.”
Following his ruling, Weinstein entered a preliminary injunction barring the cryptocurrency business operator, Patrick McDonnell, from transacting in cryptocurrencies. The cryptocurrency business, Coin Drop Markets, is also barred from making any cryptocurrency transactions.
Regulators in the US have been debating how they should regulate cryptocurrencies. While the country’s Securities and exchange Commission (SEC) has taken action against initial coin offerings (ICOs), attempting to regulating them as securities, the CFTC approved bitcoin futures trading, treating cryptocurrencies as commodities.
Coin Drop Markets’ case
According to CNBC, the CFTC has said that McDonnel and his company, Coin Drop Markets, fraudulently offered customers cryptocurrency trading advice. Reportedly, customers paid for the advice, but never really received it.
McDonnell claimed to be a cryptocurrency trading expert, and promised would-be investors what he claimed to be extremely profitable advice. Last year’s cryptocurrency craze, that saw Bitcoin hit an all-time high above $19,000, likely helped the business gain customers looking to make a profit.
After receiving various payments, the cryptocurrency business operator shut down its website, and stopped responding to all of its customers. Moreover, Coin Drop Markets was never registered with the CFTC.
The case seems to be a classic exit scam. These scams are often used by startups after their ICOs. As covered by Core Media, one even used actor Ryan Gosling as its graphic designer, before it disappeared. Another paid freelancers to write the company’s name on their bodies to fake popularity.