Bitcoin, now a commodity?
In the latest news regarding the legal situation of Bitcoin, the United States Commodities Future Trading Commission (CTFC) has declared Bitcoin and all cryptocurrencies as commodities. Such recognition arises from an Order imposed towards Coinflip, a company that operated with financial derivative contracts using Bitcoin as an underlying asset. By defining it as a commodity, Bitcoin is now paired to other valuable goods such as gold, oil, copper etc. This would mean that in the commodity derivatives market, the CTFC has the authority to establish the rules and procedures in relation to business operations that are used with Bitcoin and its trade.
Coinflip is a company that offered financial derivative contracts, where two or more parties establish an agreement whose value is based upon an underlying asset. In particular, they used Bitcoin as the underlying asset, meaning that its value is evidently affected by the fluctuations. Although the announcement may come as a surprise, former CFTC Commissioner Bart Chilton mentioned back in 2013 the possibility of regulating Bitcoin within the derivatives market. He stated that Bitcoin would be regulated “if it’s a commodity that is used as a derivative”. Furthermore, he mentioned that “if somebody’s buying it and holding it for the future, then it’s something that we can at least regulate”.
When recognizing Bitcoin as a commodity in the derivatives market, there are elements that may show the reasons for the CFTC to regulate and police such operations. As Bitcoin is a decentralized virtual currency, there are important fluctuations in value that may pose danger. There are potential risks that decrease consumer and/or market protection. As it is an international currency that may be used worldwide, the question is how to regulate “international currency” within the United States or abroad.
Nevertheless, the CTFC statement comes as an important revelation when contrasted to what other American financial authorities have said about Bitcoin.
- In 2013, the Securities and Exchange Commission defined Bitcoin as currency. Also in 2013, the US Treasury department mentioned that those firms that exchange or transfer Bitcoin shall be considered money service businesses.
- In 2014 the Internal Revenue Service stated that Bitcoin shall be considered property in terms of taxation.
- In 2015, FinCen stated that those who operated Bitcoin exchanges are considered money transmitters.
Such array of definitions show that the legality of Bitcoin relies on its use and that would subsequently, and shall ultimately, define its nature. All of it will also depend on the jurisdictional aspects, either where the operator or consumer are located.
However, the European regulatory landscape is another issue, with possibilities that fall short. Opinions from different governments still are pointing at divergent directions. In the case of Spain, where we are based, no definition of its nature has been officially announced. Instead, the tax authority has stated that Bitcoin transactions are exempt of VAT. Hence, this makes it even more controversial as the Authority should have defined “transactions” more appropriately: Is the exemption only applied when you buy and sell your bitcoins or it covers acquisitions of other goods using Bitcoins too?
As there are many statements at ground, there is no consensus on what Bitcoin will be considered from a legal viewpoint. Law and policy makers may continue to observe and define the nature of cryptocurrencies, but what ultimately define the road of Bitcoin mainstream adoption will be jurisdiction.
It is evident that consensus must be reached to clarify a unified definition that can apply to the different uses of cryptocurrencies and all of it within a frame called “global compliance Bitcoin rules” to avoid wrong use and wrong-doing of it.