On September 17, 2015, the CFTC entered into a settlement with Coinflip, Inc. d/b/a Derivabit and Francisco Riordan. As part of the settlement with Coinflip, the CFTC entered an Order which included findings and the imposition of remedial sanctions. The CFTC found that Coinflip operated an “options trading platform that connected buyers and sellers of standardized Bitcoin options and futures contracts.” By doing so, the company had violated the Commodities Exchange Act by operating a facility for trading options or processing swaps without being registered with the CFTC as a Swap Execution Facility or a designated contract market.
Coinflip advertised Derivabit as a “risk management platform . . . that connects buyers and sellers of standardized Bitcoin options and futures contracts.” Coinflip listed put and call options contracts as eligible for trading on the Derivabit platform. These contracts listed Bitcoin as the asset underlying the option and denominated the strike and delivery prices in US Dollars. Customers could place orders by registering as a user and depositing Bitcoin into an account in their name. The option contracts were settled using Bitcoin at a spot rate determined by a third-party Bitcoin currency exchange. Users could post bids or offers for the options contracts. Coinflip confirmed the bids or offers through the website.
The case is interesting because for the first time the CFTC publicly stated that Bitcoin and other virtual currencies are “commodities” subject to CFTC enforcement actions:
Section 1a(9) of the Act defines “commodity” to include, among other things, “all services, rights and interests in which contracts for future delivery are presently or in the future dealt in.” . . . The definition of “commodity” is broad. . . . .Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.
To regular observers of the CFTC, the Coinflip decision was not surprising. In May 2013, then Commissioner Chilton noted “[i]n essence, we’re talking about a type of shadow currency, and there is more than a colourable argument to be made that derivative products relating to Bitcoin fall squarely in our jurisdiction.”