The remarkable growth and volatility of Bitcoin and other virtual currencies has raised the question of how these markets are regulated. The CFTC has emerged as "the federal overseer of digital currencies like bitcoin," according to Bloomberg. Other federal regulators, such as the SEC and bank regulators, supervise specific institutions and discrete activities, and state regulators have jurisdiction in their states over money transmission. However, the CFTC is the only federal regulator of virtual currency markets. (For purposes of this article, we do not view tokens issued in Initial Coin Offerings as virtual currencies.)
What does CFTC regulation mean? It means that virtual currencies are treated as a "commodity" under the Commodity Exchange Act over which the SEC does not have direct oversight, and not as a "security" under the securities laws. The CFTC has limited jurisdiction over spot markets in virtual currencies – in which participants buy and sell virtual currencies for prompt delivery – while it has broad jurisdiction over derivatives markets, including futures, in such currencies. We discuss the CFTC's regulation of virtual currency spot and derivatives markets in greater detail below.