In 2014, the United States Securities and Exchange Commission issued a warning to individuals with regards to the negative qualities of a crpto-currency called Bitcoin. The SEC said Bitcoin’s credibility and trust was not guaranteed due to its short existence in the market. In addition Bitcoin transactions were handled through blockchain which made it hard for law enforcement agencies and the SEC to investigate Bitcoin related cases.
For those who are less familiar with the ins and outs of the currency, an explanation of Bitcoin functionality reveals that the blockchain is a “general log of transactions” on which “you can see all transactions that have ever taken place or ever will take place.” In other words, if Bitcoin is used in a financial transaction, that transaction is permanently recorded in a public space.
Overtime, Bitcoin has become to be widely accepted as a means of making payments besides being traded on exchanges. However, these exchanges are private and not regulated by the SEC. The thinking behind this was because the SEC had not defined Bitcoin as a currency or as a c0mmodity. The Commodity Futures Trading Commission, the body mandate with regulating the trading of futures has declared Bitcoin and other cryptocurrencies as commodities like wheat and oil.
The implication of this is that CFTC will provide oversight of the trading of cryptocurrency futures and options, which will now be subject to the agency’s regulations. It can also level charges against individuals found to contravene securities law not just wherever it has jurisdiction. Companies that want to offer a trading platform for Bitcoin derivatives or futures, it will need to register as is the case with the Chicago Mercantile exchange, a market in which futures are traded. Of interest to note is that Bitcoin was formed with the goal of keeping regulators and other market forces from interfering with the running of the currency.
Source: Bloomberg