On October 17, 2017, the U.S. Commodity Futures Trading Commission’s (“CFTC”) LabCFTC released a primer on virtual currencies, available here. The primer is an “education tool” that provides an overview of the virtual currency landscape and is “not intended to describe the official policy or position of the CFTC, or to limit the CFTC’s current or future positions or actions.” While the document is largely unrevealing, everyone in the initial coin offering (“ICO”) market should carefully review the risk factors outlined in the document to ensure that they are incorporated into their whitepapers and offering materials.
The primer explains that the CFTC has anti-fraud and anti-manipulation jurisdiction over virtual currency transactions in interstate commerce. However, it notes that the CFTC “generally does not oversee” these markets outside of this context. It is worth noting that this document largely pertains to “virtual currencies,” such as bitcoin. The CFTC might still regulate certain digital assets as futures or swaps, depending on the attributes of the product. The primer explains that the CFTC will look at the substance and purpose of a financial arrangement to determine if it falls within the CFTC’s jurisdiction.
The primer covers the CFTC’s jurisdiction over virtual currencies and tokens relative to the Securities and Exchange Commission’s (“SEC”), stating that “[t]here is no inconsistency between the SEC’s analysis and the CFTC’s determination that virtual currencies are commodities and that virtual tokens may be commodities or derivatives contracts depending on the particular facts and circumstances.”
Finally, the primer sets out a number of risks related to virtual currencies, but acknowledges that these products have potential benefits. It breaks these risks down into the categories of operational, cybersecurity, speculation, and fraud and manipulation risks. It is important that persons offering tokens to purchasers through an ICO or token sale carefully review these risk factors and ensure that they are incorporated into their whitepapers and offering materials.