b'SEC AND CFTC GUIDANCE GOODWINmust be offered and sold for the purpose of facilitatingcommodities transaction results in actual delivery. The access to, participation on, or the development of the2013 Guidance provided examples of what may and network, (4) the developers would have to undertakemay not constitute actual deliverye.g., that actual good faith and reasonable efforts to create liquiditydelivery involves transfer of title and possession of the for users, and (5)the developers would have to file acommodity and that book entries at a custodian where notice of reliance on the safe harbor a purchase is rolled, offset, or otherwise netted with Commissioner Peirce further proposed that theanother transaction do not constitute actual delivery.safe harbor would be available for tokens that wereAfter the 2013 Guidance, the CFTC determined that previously sold in a registered offering or pursuant tovirtual currency (currently consisting of Bitcoin and a valid exemption under the Securities Act becauseEther) is a commodity subject to the CEA. The CFTC those developers might need the safe harbor tolater brought an enforcement action against an permit secondary market trading to occur and tounregistered intermediary that offered off-exchange distribute their tokens more widely into the hands ofleveraged trading of virtual currencies to retail clients. potential users. The CFTC argued that the virtual currency platform violated the CEA because the unregistered entity did CFTC Issues Final Interpretive Guidance onnot actually deliver the Bitcoins financed under the Actual Delivery for Virtual Currencies contract. Rather, the entity held the Bitcoins in wallets (Mar.24, 2020) that it owned and controlled (where the platform held the private key). The CFTCs enforcement action raised On March 24, 2020, the CFTC delivered its finalthe question: What does it mean to own and control interpretative guidance (the Final Guidance)virtual currency? Traditional concepts like title transfer regarding the meaning of the term actual deliveryare difficult to apply on a blockchain, so should market for purposes of CEA rules governing leveraged orparticipants actually deliver virtual currency?margined transactions with retail investors involvingIn December 2017, the CFTC issued its proposed virtual currencies. The CFTCs Final Guidance comesinterpretation of actual delivery for retail commodity at an important time given the growth of decentralizedtransactions involving virtual currency (the Proposed finance among retail investors and provides greaterInterpretation). The Proposed Interpretation sought regulatory certainty for digital asset financial servicespublic comment on (among other things) what should providers in the U.S. constitute full control of virtual currency on a The CFTC has long argued that futures-like retailblockchain (e.g., whether possession of the public commodities transactions must be conducted on aand private keys is sufficient to own and control regulated exchange by intermediaries registered withvirtual currency). In comments submitted to the CFTC, the CFTC. Specifically, the CFTC states that the CEAsmarket participants noted that there is no acceptable registration requirements apply to any transaction inequivalent to title that exists in the context of virtual any commodity entered into with a retail customer (acurrency. One commenter noted that possession of a client that is neither an eligible contract participantprivate key, or in some instances multiple private keys nor an eligible commercial entity) on a leveraged oror credentials, necessary for the transfer of the virtual margined basis for future delivery. The CEA, however,commodity would be sufficient proof of full control. excepts certain futures-like commodity transactionsMoreover, the commenter argued that book entries with retail customers where the contract of sale resultsshould be permitted to satisfy actual delivery where the in actual delivery within 28 days. purchasers depository is appropriately licensed and In August 2013, the CFTC issued proposed guidanceregulated for such a custodial purpose.for the term actual delivery as it relates to traditionalBased on the comments on the Proposed commodities (the 2013 Guidance). The 2013Interpretation, the CFTC issued its Final Guidance. In Guidance included a list of relevant factors that thethe Final Guidance, in the CFTCs view, actual delivery CFTC considers in determining whether a retailin the context of virtual currency occurs when:7'