Regulating Bitcoin and Block Chain Derivatives

22 Pages Posted: 13 Oct 2014

Date Written: October 9, 2014

Abstract

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. 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 traditional 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 applies to the transactions.

Keywords: bitcoin, cryptocurrency, futures, swaps, derivatives, Commodity Futures Trading Commission

Suggested Citation

Shadab, Houman B., Regulating Bitcoin and Block Chain Derivatives (October 9, 2014). NYLS Legal Studies Research Paper. Available at SSRN: https://ssrn.com/abstract=2508707 or http://dx.doi.org/10.2139/ssrn.2508707

Houman B. Shadab (Contact Author)

New York Law School ( email )

185 W. Broadway
New York, NY 10013
United States

HOME PAGE: http://www.nyls.edu/faculty/faculty_profiles/houman_shadab

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