CFTC Commissioner: Tokens Might ‘Transform’ From Securities Into Commodities

On October 19, 2017, Brian Quintenz, a commissioner at the Commodity Futures Trading Commission (CFTC), spoke at the first annual FinTech Week held at Georgetown University Law Center. Addressing the nebulous nature of digital assets, Quintenz suggested that tokens can meet distinct regulatory classifications at different times.

Digital currencies "may actually transform at some point from something that starts off as a security and transforms into a commodity,” said Quintenz, according to Politico.

He added, "That's going to be a very difficult but important conversation for us to have to give the market certainty, to allow for innovation to flourish and continue, but [it’s necessary] to make sure that we're being consistent in how we apply commodity law and protection of consumers across all products."

This week, LabCFTC issued a primer on virtual currencies. Although this did not constitute official policy, the agency enumerated examples of permitted activities including those of LedgerX, TeraExchange, and NADEX. LabCFTC explicitly stated that prohibited activities include “A virtual currency futures or option contract or swap traded on a domestic platform or facility that has not registered with the CFTC as a SEF [swap execution facility] or DCM [designated contracts market].”

For the CFTC, developing a regulatory strategy for digital assets will likely require collaboration with the Securities and Exchange Commission (SEC), which determined in a July 2017 report that tokens from The DAO are securities. In 2015, the CFTC found that “bitcoin and other virtual currencies are properly defined as commodities.” It remains unclear which agency has jurisdiction over various tokens – and what exactly makes one token a security versus a commodity. After Quintenz’s comments, cryptocurrency stakeholders are left wondering, when does a token transform from a security into a commodity? And how will this affect compliance and disclosure requirements?