The Commodity Futures Trading Commission (CFTC) has made plain that it considers so-called “virtual currencies” to be commodities subject to CFTC regulation and jurisdiction. As the use of virtual currency continues to grow around the world, there is also a concurrent rise in the volume of virtual currency fraud.

The CFTC has already succeeded in bringing several enforcement actions against those committing fraud in these virtual markets, and whistleblowers have an essential role to play in this growing area of commodities fraud.

Most of us have yet to encounter the rise of so-called “virtual currencies.” Bitcoin is the most commonly discussed virtual currency. It is a wholly decentralized currency with units generated by so-called “blockchain” software technology. Bitcoin already serves as a medium of exchange for buying and selling goods and services online. Because it holds tangible value it can also be exchanged for traditional currencies.

Bitcoin Fraud

Like with any emergent technology, there are those who seek to exploit it and profit through fraud from its novelty and relative complexity. Under the Dodd-Frank whistleblower program of the CFTC, whistleblowers from around the world with knowledge of such fraud play an indispensable role in alerting authorities—and can be generously rewarded for doing so.

The CFTC closed an enforcement action in June of 2016 against Bitfinex, a Hong Kong-based bitcoin exchange, for offering illegal off-exchange financed retail commodity transactions in bitcoin and other cryptocurrencies, and for failing to register as a Futures Commission Merchant under the Commodity Exchange Act.

The CFTC had previously settled charges with Coinflip, Inc., then an operator of an on-line trading platform for the trading of derivatives on Bitcoin and other virtual currencies, for violations of the Commodity Exchange Act by failing to register as a swap execution facility or designated contract market.

Like more traditional players in the commodity derivatives markets, those operating in the virtual currency space must conform to the same CFTC regulations and the Commodity Exchange Act, and manipulative and other activity in this space will trigger future CFTC action.