Virtual currencies are commodities, U.S. judge rules

NEW YORK (Reuters) - Virtual currencies like bitcoin can be regulated as commodities by the U.S. Commodity Futures Trading Commission, a federal judge ruled Tuesday.

U.S. District Judge Jack Weinstein in Brooklyn ruled that the CFTC had standing to bring a fraud lawsuit against New York resident Patrick McDonnell and his company Coin Drop Markets, allowing the case to go forward.

Weinstein also entered a preliminary injunction barring McDonnell and Coin Drop Markets from engaging in commodity transactions.

McDonnell, who is representing himself, declined to comment on the decision.

The CFTC, which is tasked with regulating commodity, futures and derivatives markets, first determined that virtual currencies, also known as cryptocurrencies, are commodities in 2015.

Weinstein upheld that determination on Tuesday, saying it was supported by the plain meaning of the word “commodity” and that the CFTC had broad leeway to interpret the federal law regulating commodities.

In its lawsuit, announced in January, the CFTC said that since about January 2017, McDonnell and his company fraudulently offered customers virtual currency trading advice.

In fact, the agency said, the customers never received the advice they paid for, and that Coin Drop Markets was never registered with the CFTC. It said that McDonnell took down the company’s website and stopped responding to customers.

Regulation of virtual currencies is still in its early stages. Congress has not passed any laws addressing it directly. Both the CFTC and Securities and Exchange Commission have warned of the need to combat fraud in the virtual currency markets.