US Commodity Futures Trading Commission Primer on Virtual Currencies [pdf] | Hacker News Reader

US Commodity Futures Trading Commission Primer on Virtual Currencies [pdf]

cftc.gov

83 pointsthisisit16 comments

"Only invest what you are willing and able to lose."

Never thought I'd hear the government give positive/neutral investing advice on Bitcoin.

I think all the agencies are going to fight to classify something they can control. Is it a commodity, property, stock, a digital gold or something else?

This is the advice that all agencies give regarding investments. In this regard there's nothing special about cryptocurrency.

Re: regulation, so far it is property from a taxation perspective and either property or a security from a regulation perspective. Instruments on top are regulated as all derivative financial products are.

I wouldn't characterize the 20 slide deck as "neutral." Namely, 6 of the 20 slides warn about risks that can be summarized as "you have no recourse if something goes wrong."

I think the primary publication motivation was to protect the CFTC. "Why didn't you say something?"

>I wouldn't characterize the 20 slide deck as "neutral." Namely, 6 of the 20 slides warn about risks that can be summarized as "you have no recourse if something goes wrong."

How is that not neutral? It's just stating simple fact.

If the CFTC writes a report about, say, Corn Futures, they talk about what the rules are, and what you can do if you get scammed because a bad actor violates those rules. The CFTC might say, "you have the right to appeal a decision" yada yada.

But here, they're just saying, effectively, "look, we warned you."

This reads more like an internal memo to the senior management of CFTC that don't even use a smartphone.

Unfortunately it doesn't seem to offer any new information. Half of it reads like a typical"what is a cryptocurrency? pros and cons" article from LinkedIn.

"The CFTC first found that Bitcoin and other virtual currencies are properly defined as commodities in 2015."

Never heard of this before. What are the implications of this on ICOs if any?

(Not a CPA or tax attorney, consult your regionally certified folks for specifics. Just parroting what the IRS has published for consumer-consumption.)

At the national level, the IRS declared Bitcoin pretty clearly in Notice 2014-21 for 2015 onwards as strictly a capital asset and not as a currency backed by a foreign nation state. Q/A #7 is the most pertinent.

The implications on ICOs for an investor under the dominion of the IRS would be nearly nothing, as it's treated as a capital asset (valued upon purchase at FMV, and then again upon sale, once again, at FMV). Think of it like buying MSFT at $foo, selling at $bar, then paying capital gains on your gross less fees. Relevant publications are the 544 if you're trading, the 525 if you're mining. All service/product based income Bitcoin must be declared in a 1099-MISC.

The last page is dedicated to a love-note saying "hey, so listen, you're 100% subject to the standard "failure to report (correctly or not) tax evasion penalties, so uh pay us".

If you're offering an ICO yourself, things are going to get an order or two of magnitude more complicated, I'd imagine. No idea how it's classified but I'd imagine your regulatory reporting burdens will be somewhere between pink sheets and a publicly traded NYSE post-Sarbox company

Edit: On second thought, it might be higher since you're very arguably operating a FinEx. "Know your customer" rules a la banking regulations might apply (i.e. filling out a SAR and filing with FinCEN). I'd definitely speak with a tax attorney who's worked on FINRA secondary market filings though.

> If you're offering an ICO yourself, things are going to get an order or two of magnitude more complicated, I'd imagine. No idea how it's classified but I'd imagine your regulatory reporting burdens will be somewhere between pink sheets and a publicly traded NYSE post-Sarbox company.

They are actually simpler, I know this from running an OTC for a few years. The blockchain keeps people far more honest and transparent than Stock Transfer Agents, IQCapital and DTCC combined. T

> They are actually simpler, I know this from running an OTC for a few years

CFTC saying X is a commodity doesn’t exclude the SEC from also claiming jurisdiction. Lots of FINRA-member firms offer CFTC-regulated trading services. Congress had to write specific laws preventing this from happening to commodities futures; no such exemption has been legislated for ICOs. That said, yes, the CFTC is generally seen as an easier regulator than the SEC.

TL; DR the CFTC and SEC have begun fighting for ICO jurisdiction. Score is kept with rule writing and prosecutions.

Disclaimer: I am not a lawyer. This is not legal nor any kind of advice. Don’t break the law.

You should be able to invest in anyone you want without restrictions but more importantly, without manipulation of Finra, the SEC, CapitalIQ, stock transfer agents. And, the DTCC is what everyone keeps its eyes on.

How so? Most ICOs see almost all the ether going into a private wallet and then traded to exchanges. Easy to see if you know the addresses for Coinbase, Poloniex, etc (etherscan.io automatically identifies known exchanges.) No one seems to care. Always looks like they are cashing out before they run away with the money..Once its off the chain, who knows what happens to it?

The danger is definitely the ICO's for investing. The O part of ICO implies that you're selling something on the promise of having access to it when it is live/released. That smacks of a security in everything but name, and that's a big no-no. They're selling unregulated securities and raking in hundreds of millions through the process. I imagine the SEC doesn't take kindly to unregulated capital raising, and naming it something else I wouldn't expect to dissuade them. Bitcoin doesn't have this, because no-one controls the issuance of the tokens.

As a long-term bitcoin holder, I think I have a good handle on crypto. I'm actually quite surprised the the dinosaur hasn't started giving direction about how ICO's fall afoul of existing capital raising regulations. Maybe they think it's too small to care? Not sure. It's an issue though.

I was primarily addressing parent re: the classification of security vs. commodity. I agree with you 100% that the danger lays with the investor and it falls under the designation of a 'security' without a doubt[0].

And again, you're right - the SEC doesn't take kindly to unregulated capital raising. (There's a reason why the designation of 'accredited investor[2]' had capital requirements to begin with-- to be legally invest in an ICO, or any block-chain based currency, you have to either have a net worth of >1MM or an earned income of >200k (>300k if filing with a spouse) for the last two years.) Investor safety isn't really what we're discussing here though, so much as which federal agency has regulatory control.

I was going to basically say what JumpCrisscross said, but he beat me to the punch[3]. Until we see some federal case law to set precedent, it's anyones game.

[0] "On July 25, 2017, the SEC issued a Report of Investigation under Section 21(a) of the Securities Exchange Act of 1934... determining that DAO Tokens were securities."

[1] https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_co...

[2] https://investor.gov/additional-resources/news-alerts/alerts...

[3] After clicking on his profile, it was all made clear, haha

Be careful, the CFTC uses a very, very broad definition of commodity:

The definition of “commodity” in the CEA is broad. ─ It can mean a physical commodity, such as an agricultural product (e.g., wheat, cotton) or natural resource (e.g., gold, oil). ─ It can mean a currency or interest rate. ─ The CEA definition of “commodity” also includes “all services, rights, and interests . . . in which contracts for future delivery are presently or in the future dealt in.”

So a stock option, for example, fits into this description. But don't mix it with other definitions of commodity used in different contexts.

Broadly speaking the SEC regulates stock options as they are a derivative that reference a single underlying security, and that security is the equity in a company. Other securities like various swaps that reference a single security are considered generically security based swaps and are regulated by the SEC. The SEC also regulates narrow stock indices which I believe have less than 10 components.

Who has jurisdiction for super exotic things where the law is unclear is often a negotiation between the SEC and CFTC.

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