Are Digital Assets Commodities? A Groundbreaking CFTC Case

Are digital assets commodities? A new complaint filed by The Commodity Futures Trading Commission (CFTC) against a number of non-U.S. entities that operate as a single digital asset exchange under the name KuCoin may answer that question. An article from the Cadwalader firm calls this case, filed in the Southern District of New York, “groundbreaking and informative,” based on several observations.

First, it clarifies whether digital assets can be defined as commodities. The answer has been elusive, the writers note. One presumed list had virtually everything qualifying as a commodity with “delineated exceptions being onions and motion picture box office receipts.”

The CFTC has confirmed that virtual currencies qualify as digital assets and are traded as commodities in interstate commerce. This designation gives the CFTC regulatory jurisdiction to prosecute fraud and manipulation. 

In the complaint, KuCoin is alleged to have violated the Commodity Exchange Act and regulations by failing to implement required customer identification policies to counter money laundering, per requirements in the Bank Secrecy Act. The requested relief includes a permanent ban on conducting regulated business in the U.S., restitution to consumers and investors, and significant monetary penalties.

The outcome of this case is “disheartening,” the writers say, because it should have been clear to KuCoin that some if not all digital assets are going to be regarded as commodities. Moreover, compliance would have been relatively cheap, given that KuCoin’s trading volume was $3.6 trillion and its daily trading volume was $23 billion.