A "categorical platypus" – that's the phrase attorney Marco Santori used to describe cryptocurrency at a recent panel discussion hosted by the Council on Foreign Relations.
"Tokens are this … hairy mammal that lays eggs and is also poisonous but warm-blooded. It's difficult to categorize as just one thing," he said.
This categorical complexity is at the heart of the legal argument in a case that went to trial today. My Big Coin (MBC) and its creator Randall Crater are accused of perpetrating a $6 million fraud. His attorneys are arguing the CFTC has no authority to bring the case.
According to a January 24 announcement, the CFTC is accusing MBC of:
"(1) misrepresenting that MBC was actively being traded on several currency exchanges, including the MBC Exchange website, when in fact it was not; (2) misrepresenting in reports the daily trading price, when in fact no price existed because MBC was not trading; (3) misrepresenting that MBC was backed by gold, when in fact it was not; and (4) misrepresenting that MBC had partnered with MasterCard, with the promise that MBC could be used anywhere MasterCard was accepted, when in fact no such partnership existed."
MBC's counsel concisely responded to the allegations. "Our argument boils down to the fact that because My Big Coin does not have future contracts or other derivatives trading on it, it is not a commodity," said attorney Katherine Cooper.
While this assertion doesn't imply MBC's innocence, it seems like a plausible argument against the CFTC's involvement in the case and highlights the hazy state of digital currency regulation.
Virtual currencies and tokens awkwardly fit into the traditional definitions of securities and commodities. Historically, a security represents ownership in a company (e.g., a stock), whereas a commodity is an actual product (e.g., minerals, agricultural goods).
While commodities are typically understood as "tangible" goods, in March, a federal judge ruled that cryptocurrencies like bitcoin are, in fact, commodities. However, attorneys for MBC argue that the earlier case's ruling does not apply because MBC is not a commodity. As Reuters reported, MBC "is neither a tangible good nor a service on which future contracts are being traded."
But MBC does not appear to be a security either. After all, the company never claimed to be selling anything resembling ownership in the company.
MBC's lawyers seem to be banking on the company falling into a regulatory twilight zone, and the case could set an important standard for future cryptocurrency legal disputes. All that can be said is that it looks likes MBC may have improperly received $6 million dollars. And for that, they offered no stake in the company, no goods, and no services.
Well, however you define it, that sounds a lot like fraud.
An earlier version of this article contained an error in the spelling of Randall Crater's name.