Keywords: commodity, futures trading, bitcoin, exchange act, commission regulations

On September 17, 2015, in an order in the Matter of Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan, Respondents, CFTC Docket No., 15-29, the US Commodity Futures Trading Commission (Commission) found that the respondents had violated Sections 4c(b) and 5h(a)(l) of the Commodity Exchange Act (CEA) and Commission Regulations 32.2 and 37.3(a)(l) by conducting activity related to commodity options contrary to Commission Regulations and by operating a facility for the trading or processing of swaps without being registered as a swap execution facility or designated contract market.

Specifically, the order found that the respondents operated an online facility named Derivabit, offering to connect buyers and sellers of Bitcoin option contracts and, as such, failed to register that facility as a swap execution facility or designated contract market as required under section 5h(a)(1) of the CEA.

The order specifically finds Bitcoin and similar virtual currencies (cryptocurrencies) to be "commodities" as defined in section 1a(9) of the CEA. The consequences of the order are potentially significant and will subject certain transactions in cryptocurrencies to required trading on recognized exchanges (or to have applicable exemptions therefrom) and subject parties to such transactions to possible registration as commodity pool operators or commodity trading advisers (or to have available exemptions therefrom) or, depending on the nature of such party's role and other activities, to possible registration as a swap dealer or major swap participant.

Originally published September 18, 2015

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