Byte Me: CFTC’s bitcoin mania

If you were to accost a capital markets professional in the street and ask them to give examples of commodities, they might name oil, gold, copper, or, if they are also a film buff, frozen orange juice concentrate. Bitcoin might not make that list, but the Commodity Futures Trading Commission (CFTC) is trying to change attitudes to increase its remit over cryptocurrencies.

  • By Costas Mourselas, Lewis McLellan
  • 04 Oct 2018
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Of course, avid readers of this column will know that the CFTC’s attempts to claim cryptocurrency is a commodity, and thus under its jurisdiction, are not new. Back in 2015, in an order against crypto exchange Coinflip, the CFTC argued its case that Coinflip should have registered with the regulator to offer options and futures on cryptocurrencies.

This was the first time the CFTC succeeded in testing its hypothesis that Bitcoin, and cryptocurrencies like it, are in fact commodities, at least in the context of derivatives trading.

The broad Commodity Exchange Act defines commodities as “goods and

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CFTC throws its weight around in the cryptocurrency market.

all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in.”  

That’s a pretty all-encompassing definition. 

This week the CFTC triumphantly declared a fleeting victory against the operators of a cryptocurrency called My Big Coin in court.

Fleeting, because while the ruling was in the CFTC’s favour, it was with regards to a motion to dismiss filed by the defendants, meaning the CFTC has merely won the right to have the case brought to trial. But nevertheless, the CFTC has won a victory in throwing its jurisdictional weight around in the cryptocurrency market.

The senior judge concluded that the wide reaching Commodity Exchange Act (CEA) supports the CFTC’s argument as it defines commodity “generally” as opposed to by “type, grade, quality, brand, producer” or other criteria.

This reading of the legislation implies that even if there were no futures or options market for My Big Coin specifically, the CFTC has jurisdiction of cryptocurrencies generally. If the CFTC wins the case, and continues to do with similar cases, it could increase its oversight of cryptocurrency markets simply by arguing its case in the courts.

But this type of regulatory encroachment in the USA, the land of checks and balances, is nothing new according to Paul Devlin, partner at Richards Kibbe & Orbe in New York.

Devlin described to Byte Me three ways in which agencies like the CFTC can extend their regulatory oversight over nascent markets.

The first method is the old fashioned way, where US Congress passes new legislation that gives new oversight to the regulator.

“Given the relative dysfunction of US Congress in recent years and the complexity of the issues, I don’t see this as very likely in the near future,” said Devlin.

The second method is by making new regulations or providing new interpretations of existing rules. The CFTC could, therefore, define the cryptocurrency spot market in a way that allows it to fall under existing rules in the CEA, ending up with CFTC oversight. Devlin noted that while this is a deliberate process, with input from the public, it can still be challenged and fought in court.

The last method, and the method currently being employed by the CFTC is increasing oversight by enforcement action.

Pursuing malicious actors in the market can be a quick and effective way to increase oversight, establishing your presence as a regulator, but it has problems.

Some lawyers and market participants see it as controversial because they believe regulatory agencies overuse the tool. It also gives little warning to market participants when the scope of a regulator’s powers change abruptly.

For example, if it is determined in court that someone has violated the CEA, that new jurisdictional power that that implies can catch others doing something similar without any warning.

It is too soon to tell what approach the CFTC will take in the long run, especially as it tries to figure out exactly how its own oversight will mesh with that of the SEC.

While the SEC has not made a claim on regulating vanilla cryptocurrencies like Bitcoin, some cryptocurrencies issued as part of initial coin offerings may look, smell and act like conventional securities, warranting appropriate oversight, and the SEC has its own enforcement actions in progress establishing its jurisdiction.

Once the CFTC has a better feeling for how it wants to play its hand, it may try to make new regulations to clarify and establish its oversight for the market. But for now, as Devlin told Byte Me, enforcement is a faster method for tackling villains.

Hammond’s terrible idea

Everyone with something they do not know how to sell hitches their cart to the much-flogged horse known as the blockchain. Now, the UK chancellor of the Exchequer, Philip Hammond is talking the technology up as a solution for the Irish border dilemma that is dogging Brexit talks.

While Hammond admitted (unnecessarily) that he’s not an expert on blockchain, he suggested it is most obvious technology to solve the problem of Brexit causing a hard border in Ireland.

Border disputes are regulatory issues, not technological ones. While some firms may be using blockchain to track supply chains, the idea that this would obviate the need for a border, or be somehow ready for deployment on a national level is ludicrous and reeks of desperation. Read more about it online.


Cryptofunding postgrad study

Something called ConsulCoin was launched this week, claiming to be the first European crypto-dedicated investment fund.

It promises the usual stuff: exposure to the spectacular performance of cryptocurrencies (although it is interesting to note that funds are now talking about the 1,400% performance since 2014, since the last year’s performance is actually flat), better security than established crypto platforms, and a host of institutional grade functionality.

The company behind it is also partnering with a university to offer a master’s degree in “blockchain and cryptocurrency economy” — the first European postgraduate course on the subject payable with digital coins. So, if you’ve got some cryptocurrency burning a hole in your private key-secured wallet and you literally and figuratively do not know what to do with it, perhaps this is your big opportunity.

  • By Costas Mourselas, Lewis McLellan
  • 04 Oct 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 300,081.56 1165 8.07%
2 JPMorgan 293,494.39 1273 7.90%
3 Bank of America Merrill Lynch 274,298.19 930 7.38%
4 Barclays 227,181.22 846 6.11%
5 Goldman Sachs 201,953.92 668 5.43%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 42,985.58 172 7.09%
2 JPMorgan 38,694.99 77 6.39%
3 Credit Agricole CIB 32,828.90 156 5.42%
4 UniCredit 32,244.17 143 5.32%
5 SG Corporate & Investment Banking 31,187.44 119 5.15%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 12,829.62 54 9.00%
2 Goldman Sachs 12,047.80 58 8.45%
3 Citi 9,451.48 53 6.63%
4 Morgan Stanley 8,043.15 48 5.64%
5 UBS 7,829.15 30 5.49%