bitcoin, blockchain

The U.S. Commodity Futures Trading Commission (CFTC) has fined the Hong Kong-based bitcoin exchange, Bitfinex over trading violations. The company is said to perfom illegal off-exchange financed retail commodity transactions in bitcoin and other cryptocurrencies.

As the US watchdog CFTC informed, the company should have been registered as a Futures Commission Merchant (FCM) for providing such services in the United States.

Bitfinex did not admit or deny findings of CFTC and the fine reached up to $75,000 with Bitfinex agreeing to cease and desist from future violations of the Commodities Exchange Act.

Bitfinex held functional control over funds tied to leveraged or margin trading on the platform. The CFTC informed that as no actual commodities were delivered by Bitfinex to its clients– the private keys tied to the applicable bitcoins remained under the exchange’s control and that was in violation of the Commodity Exchange Act. The violations have been ongoing between April 2013 to at least February 2016.

According to CFTC:

“The Order finds that from April 2013 to at least February 2016, Bitfinex permitted users to borrow funds from other users on the platform in order to trade bitcoins on a leveraged, margined, or financed basis. The Order also finds that Bitfinex did not actually deliver those bitcoins to the traders who purchased them. Instead, Bitfinex held the bitcoins in deposit wallets that it owned and controlled, the Order states.”

This decision of the CFTC is an example of the far reaching arm of the Dodd-Frank Act heavily regulating financed commodity transactions. Transactions involving cryptocurrencies such as Bitcoin must be conducted on an exchange or the entity, offering the transactions, have to prove that an actual delivery of the bitcoin or any other cryptocurrency units is made within 28 days.

Bitfinex will have be registered as a CFTC Merchant from now to be able to accept trading orders and receive funds in related to retail commodity transactions.

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