CFTC Releases New Guidance Redefining "Physical Delivery," Safeguarding User Ownership of Cryptocurrency Assets

As the cryptocurrency derivatives market continues to expand with offerings such as Bitcoin futures and options contracts introduced by major players like the Chicago Mercantile Exchange (CME) and Bakkt under Intercontinental Exchange, U.S. regulatory authorities have once again issued guidance to define the blurry line between cryptocurrency futures and spot market trading.

• CFTC Redefines "Actual Delivery" of Crypto Assets
• Users Must Have Control of Their Crypto Assets Within 28 Days of Trading

Regarding Physical Delivery Derivatives

The U.S. Commodity Futures Trading Commission (CFTC) released final interpretive guidance on digital asset actual delivery on March 24, stating in the announcement that it is not an attempt to regulate any specific trading activity, but to clarify which types of trading activities may be subject to regulation under the Commodity Exchange Act (CEA). Digital asset "actual delivery" should meet the following conditions:

1. Users:

(i) Users must be able to hold and control their assets whether through futures or margin trading.

(ii) Users must be able to "freely" control their assets within 28 days after the trade.

2. Offerors and Counterparties (sellers):

Offerors and counterparties must no longer have any rights to the assets within 28 days after the trade, including not being able to engage in margin, leverage, or other related transactions.

It is understood that this move may be due to the fact that the exchange Bitfinex failed to deliver bitcoins to buyers after users completed margin trading in 2016, resulting in Bitfinex paying a $75,000 civil penalty to the CFTC and reaching a settlement.

The CFTC emphasized that the guidance incorporates public input, including the Digital Assets and Cryptocurrency Market Advisory Committee, and engages with the market to gather broad insights.

CFTC Chairman Heath P. Tarbert stated:

Providing clear information to market participants is one of the core values of the CFTC. This guidance reflects that core value and my belief that the United States must lead in the digital asset space. These regulations are critical when hard-earned money of Americans is at stake. Under my leadership, the CFTC will continue to play a public role, encouraging responsible fintech innovation through sound regulations.

Positive Signals to the Crypto Industry

This guidance is the latest measure by the CFTC to regulate digital assets. Previously, CFTC Chairman Heath P. Tarbert has shown a friendly attitude towards cryptocurrencies, stating that regulated derivatives will instill "confidence" in the traditional financial markets regarding cryptocurrencies and help legitimize crypto assets. He also explicitly mentioned that Bitcoin and Ethereum are "commodities":

Bitcoin and Ethereum fall under the CFTC's jurisdiction, while the regulatory status of Ripple is still in a gray area. Over the past year, we have been closely working with the SEC to seriously consider the jurisdictional issues of these cryptocurrencies, but there are currently no clear regulations, making it difficult to determine how these cryptocurrencies should be regulated.

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