## Facts

- Coinflip, Inc. (doing business as Derivabit) and its CEO, Francisco Riordan, operated an online trading facility from about March 2014 to at least August 2014.
- Derivabit offered to connect buyers and sellers of standardized Bitcoin put and call option contracts.
- The options used Bitcoin as the underlying asset, with strike and delivery prices denominated in U.S. dollars, and settlement in Bitcoin based on a spot rate from a third-party Bitcoin exchange.
- Customers could register, deposit Bitcoin, and place bids and offers; Derivabit confirmed matches through its website.
- Coinflip did not register Derivabit with the CFTC as a swap execution facility (SEF) or designated contract market (DCM).
- The CFTC instituted an administrative proceeding alleging violations of Commodity Exchange Act (CEA) §§ 4c(b) and 5h(a)(1) and CFTC Regulations 32.2 and 37.3(a)(1).
- The matter resolved through a CFTC settlement order; respondents consented to findings without admitting or denying them.

## Issues

1. Whether Bitcoin and other virtual currencies are “commodities” under CEA § 1a(9), bringing Bitcoin derivatives within CFTC jurisdiction.
2. Whether Bitcoin option contracts offered on Derivabit constituted “commodity options” and “swaps” regulated under the CEA and CFTC Regulation 32.2.
3. Whether operating Derivabit without SEF or DCM registration violated CEA § 5h(a)(1) and CFTC Regulation 37.3(a)(1).

## Decision

- The CFTC concluded Bitcoin and other virtual currencies are “commodities” within the meaning of CEA § 1a(9).
- The CFTC found Coinflip and Riordan violated CEA §§ 4c(b) and 5h(a)(1) and CFTC Regulations 32.2 and 37.3(a)(1) by engaging in commodity options activity contrary to Commission regulations and by operating a facility for the trading or processing of swaps without required registration.
- The order imposed a cease-and-desist and compliance-related remedial sanctions; it did not impose a monetary penalty.

## Legal Principles

- The CEA’s definition of “commodity” in § 1a(9) is broad and includes services, rights, and interests in which futures contracts are or may be dealt; virtual currencies fall within this definition.
- Options on a commodity are “commodity options” regulated under CEA § 4c(b) and CFTC Regulation 32.2.
- Commodity options of the type offered on Derivabit were treated as “swaps,” triggering platform-level requirements applicable to swap trading and processing.
- A facility that offers trading or execution of swaps must register as a SEF or DCM under CEA § 5h(a)(1) and CFTC Regulation 37.3(a)(1); operating such a facility without registration violates the CEA.

## Conclusion

The CFTC’s settlement order classified Bitcoin as a commodity under the CEA, treated Bitcoin option contracts as regulated commodity options and swaps, and required that platforms facilitating their trading register as a SEF or DCM, imposing cease-and-desist relief for unregistered operation.


In re Coinflip, Inc., CFTC Docket No. 15-29, 2015 WL 5535736 (C.F.T.C. Sept. 17, 2015)