## Facts

- BFXNA, Inc., doing business as Bitfinex, operated an online platform that enabled trading in virtual currency, principally bitcoin, including spot transactions and leveraged, margined, or financed bitcoin trades.
- Bitfinex offered a peer-to-peer “funding” feature in which customers could lend U.S. dollars or bitcoins to other customers, and Bitfinex administered the lending arrangements used to support leveraged bitcoin positions.
- Bitfinex imposed margin requirements and could force-liquidate customer positions when equity fell below specified thresholds.
- Many customers engaging in financed or margined bitcoin transactions were retail customers who were not eligible contract participants or eligible commercial entities.
- Bitfinex was not registered with the CFTC, including as a futures commission merchant (FCM).
- For bitcoins associated with financed or margined trades, Bitfinex used omnibus custody arrangements (later including multi-signature wallets) in which Bitfinex retained possession or control of wallet keys and could move customer assets.
- Customer account balances reflected bitcoin credited through internal book entries, but financed bitcoins were not transferred into the customer’s possession and control or to a depository independent of Bitfinex and its affiliates within 28 days of the transaction.

## Issues

1. Whether Bitfinex’s leveraged, margined, or financed retail bitcoin transactions were “retail commodity transactions” subject to CEA § 2(c)(2)(D).
2. Whether the transactions fell outside CEA § 2(c)(2)(D) because bitcoin was “actually delivered” to the buyer (or an independent depository) within 28 days.
3. Whether Bitfinex violated the CEA by offering off-exchange retail commodity transactions and by accepting orders and customer funds for such transactions without registering as an FCM.

## Decision

- The CFTC instituted and resolved a public administrative proceeding by settlement; Bitfinex consented to the order without admitting or denying the findings.
- The CFTC found that Bitfinex offered and entered into financed, margined, or leveraged retail commodity transactions in bitcoin that did not result in actual delivery within 28 days and therefore were regulated “as if” futures under CEA § 2(c)(2)(D).
- The CFTC found violations of CEA § 4(a) for offering and entering into such transactions off-exchange (i.e., not on a registered board of trade).
- The CFTC found violations of CEA § 4d for accepting orders and customer funds for these transactions without FCM registration.
- The order required Bitfinex to cease and desist from further violations, pay a $75,000 civil monetary penalty, and take remedial measures to ensure future financed retail commodity transactions either result in actual delivery or occur on a regulated exchange with appropriate registration.

## Legal Principles

- Virtual currency, including bitcoin, is a “commodity” for purposes of the Commodity Exchange Act.
- Leveraged, margined, or financed transactions in a commodity with retail customers are regulated under CEA § 2(c)(2)(D) “as if” futures contracts unless an exception applies.
- The “actual delivery” exception requires physical delivery of the entire quantity (including any financed portion) to the buyer or to a depository other than the seller and its affiliates, and the delivery must not be a sham.
- Internal book-entry credits on a platform, coupled with the platform’s retention of control over the commodity (including unilateral ability to transfer assets or liquidate positions), do not constitute “actual delivery.”
- Retail commodity transactions treated as futures-like under CEA § 2(c)(2)(D) must be executed on or subject to the rules of a registered exchange, and an entity accepting orders and customer funds for such transactions must register as an FCM.

## Conclusion

The CFTC determined that Bitfinex’s retail leveraged bitcoin trading program did not satisfy the actual-delivery exception because Bitfinex retained control over customer bitcoin, making the trades subject to futures-like regulation; Bitfinex’s off-exchange activity and lack of FCM registration violated the CEA, leading to a cease-and-desist order, penalty, and compliance obligations.


In re BFXNA, Inc., CFTC Docket No. 16-19 (C.F.T.C. 2016)