Regulating Bitcoin and Block Chain Derivatives

* Article: Regulating Bitcoin and Block Chain Derivatives. by Houman B. Shadab

URL = http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/gmac_100914_bitcoin.pdf

Written statement to the Commodity Futures Trading Commission. Global Markets Advisory Committee. Digital Currency Introduction – Bitcoin, October 9, 2014

Summary

"Bitcoins are scarce digital commodities that enable parties to transmit messages over a network that serves as a universal public ledger. Bitcoins fall within the definition of “commodity” under the Commodity Exchange Act (CEA) such that derivatives contracts that reference bitcoins are subject to regulation by the Commodity Futures Trading Commission (CFTC). Like other derivatives, Bitcoin derivatives would likely not be subject to the full scope of regulation under the CEA to the extent such derivatives involve physical delivery (as opposed to cash settlement) or are nonfungible and not independently traded. In addition, Bitcoin swaps are currently too illiquid to be subject to mandatory clearing. A growing number of firms are offering Bitcoin derivatives, most of which are for retail traders. In addition to derivatives that reference bitcoins, the Bitcoin (block chain) protocol can potentially enable automated derivatives contracts that securely trade, clear, and settle without the use of trusted intermediaries. The CFTC should consider an exemption for block chain derivatives that meet its policy objectives as a result of the rules that the underlying code embeds in the transactions."