The U.S. Commodity Futures and Trading Commission has granted the digital currency bitcoin the official status of a commodity.
The CFTC published its decision Sept. 17, and the agency says bitcoin operators should get registered immediately under the relevant regulations and laws.
The latest decision from the CFTC means all cryptocurrency transactions should comply with regulations and governing legislation of the Commodity Exchange Act. Operators of bitcoin exchanges must be registered as a Designated Contract Market or Swap Execution Facility under Section 4c of the Commodity Exchange Act.
"In the order, the CFTC for the first time finds that bitcoin and other virtual currencies are properly defined as commodities," per the CFTC order.
Many market observers had suggested that bitcoins should be given commodity status. CFTC's action to grant the official status of a commodity to bitcoin means operators of the digital currency will be subject to laws and regulation of the agency. Any manipulation or wrongdoing on the part of bitcoin operators will now be dealt with by the CFTC.
The order was given following an inquiry into Coinflip, a San Francisco-based bitcoin operator. The order asked Coinflip to stop violating the act and comply with the rules.
Coinflip is not the only company that provides bitcoin future and derivatives trading platform. The latest CFTC order means many other small, unregulated bitcoin exchanges may soon draw the attention of CFTC.
Awarding the status of commodity to the bitcoin means that it will get easier to trade in the digital currency and at the same time clean up the trading surrounding the product. However, regulated operations may increase the cost of business.
The Commonwealth Bank of Australia and a consortium of nine banks that include the Royal Bank of Scotland and Barclays are also looking at bitcoin technologies for driving global finances and for creating a secured online payment service.
The consortium has also recruited R3, a financial technology company based in New York, for developing technologies that are based on the blockchain trading system that facilitates trading in digital currencies such as bitcoin. Blockchain is the system in which all of the transactions for the digital currency are stored and verified. What makes the technology interesting for banks is that blockchain can store other data as well, such as transaction ownership, along with the transaction information, and verification is by consensus so it is hard to spoof.
"These technologies have the potential to change the way we view not just payments, but business processes," says David Whiteing the chief information officer of the Australian bank. "We also believe it will help and develop innovations we can't yet even think of."