Bitcoin, the creation of Satoshi Nakamoto, an anonymous person or group, is commonly touted as the “world’s first decentralized digital currency”. Since its launch in 2009, users around the world have “mined” just over 12 million Bitcoins, leaving about 9 million to be mined. Aside from the cool factor, Bitcoin offers portability, relative security, and lower transaction costs—unique features resulting from the absence of a central monetary authority.[1] However, the lack of a central monetary authority also creates extreme price volatility and the potential for use for tax evasion and foreign exchange arbitrage. A number of regulatory solutions have been proposed, including regulation by the U.S. Treasury or the Securities and Exchange Commission. Another option for Bitcoin regulation is as a commodity within the scope of the Commodity Exchange Act (CEA), under the supervision of the U.S. Commodity Futures Trading Commission (CFTC).
Bitcoin may fall within the definition of a commodity as a good “in which contracts for future delivery are presently or in the future dealt in.”[2] Financial instruments that track the value of Bitcoin unattached to Bitcoin ownership would be regulated as a swap.[3] Subjecting Bitcoin dealers and investors to CFTC regulations for swap dealers and participants may allow regulators to closely monitor this new financial and technological development, prevent its use to exploit consumers, and curb its creation of systemic financial risk.
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