Shearman & Sterling | FinTech | CFTC Issues Customer Advisory on Purchasing Digital Assets
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  • CFTC Issues Customer Advisory on Purchasing Digital Assets

    On July 16, 2018, the Commodity Futures Trading Commission issued a customer advisory on the risks of purchasing digital assets.  The advisory, titled “Use Caution When Buying Digital Coins or Tokens,” recommends that customers thoroughly research any potential purchases of digital assets without regard to how those digital assets are described (e.g., utility tokens or consumption coins).

    In particular, customers should understand how proposed digital asset transactions work and the underlying factors that could influence the longer-term value of any purchased digital assets.  The CFTC also highlights signs of fraud, such as marketing materials that offer quick wealth or guaranteed returns, and encourages potential customers to research who is behind the digital asset’s offering, cautioning that difficulty in finding such information should be considered a “red flag.”  Additionally, potential customers should consider whether a digital asset may be a security subject to federal securities laws, and also whether that digital asset may be a derivative or commodity subject to the CFTC’s jurisdiction. 

    This is the fourth customer advisory related to virtual currencies issued by the CFTC, and it is generally consistent with the themes and recommendations of the previous advisories.  In line with the publicized statements of other federal regulators, the CFTC continues to recommend a facts-and-circumstances approach in respect of digital assets and their regulatory status.  This approach was also emphasized by CFTC Chief Innovation Officer and LabCFTC Director Daniel Gorfine in written testimony before the U.S. House Committee on Agriculture on July 18, 2018. We will continue to monitor releases by the federal regulators for further guidance in the FinTech space.