A new interpretation of the Commodities and Futures Trading Commission (the CFTC) removes some uncertainty from a key exemption for virtual currencies. On March 23, 2020, the CFTC approved its final interpretive guidance on the meaning of the term “actual delivery”. In order for retail commodity transactions involving digital assets to be exempt from CFTC regulation under the Commodity Exchange Act (CEA), the transaction must result in actual delivery within 28 days, or such other time determined by the CFTC based on typical commercial practice in spot markets for the assets involved. The guidance is intended to provide the Commission’s interpretation of when “actual delivery” occurs in retail commodity transactions involving virtual currencies.

Pursuant to the guidance, actual delivery of a virtual currency occurs when (1) the purchaser secures (i) possession and control of the entire quantity of the commodity (whether purchased on margin, or using leverage, or any other financing arrangement), and (ii) the ability to use the entire quantity of the commodity freely in commerce or within the entirety of its relevant blockchain ecosystem (away from any particular execution venue), no later than 28 days from the date of the transaction and at all times thereafter; and (2) the offeror and counterparty seller (including any affiliates or other persons acting in concert with the offeror or counterparty seller) do not retain any interest in, legal right or control over, any of the commodity purchased at the expiration of the 28 day period. The Commission reinforced its prior guidance that actual delivery does not occur where a transaction is effected by setting off against, netting out, or settling in cash or virtual currency (other than the purchased virtual currency) between counterparties, even though the transaction may have been completed within the 28-day period.

In determining when “actual delivery” occurs, the CFTC will look to how a transaction is actually marketed, managed and performed, rather than relying solely on the language used by the parties to the transaction. According to the CFTC, the two central tenets of “actual delivery” of a virtual currency are (1) the transfer of the digital assets away from the offeror or counterparty seller, and (2) the receipt by a separate blockchain address or depository that is (a) chosen by the customer and (b) allows the customer to use the entire amount of the virtual currency freely in commerce as soon as technologically possible. Despite the use of the language from its prior guidance that there must be a demonstration of “possession and control” of the transferred commodity, this new CFTC guidance points to a “functional determination” of actual delivery of virtual currencies that requires receipt of the transferred digital assets at a separate blockchain address of the purchaser, which assets can be freely used as soon as technologically feasible. 

The guidance includes 5 examples of transactions in virtual currency where actual delivery either does or does not occur:


In the first example, actual delivery occurs when there is a record on the public blockchain of a transfer from the seller to the purchaser, over which the purchaser maintains sole possession and control.

In the second example, actual delivery occurs where the seller transfers the virtual currency to an unaffiliated depository who has entered into an agreement with the purchaser to hold the digital asset as its agent and without regard to any asserted interest of the seller, where the purchaser can freely exercise rights in the full amount of the virtual currency without any liens arising from the use of leverage, margin or financing to obtain the virtual currency.

In the third example, actual delivery does not occur if the virtual currency is not transferred from the digital account of the seller to a separate and independent depository or blockchain address over which the purchaser maintains possession and control. 

In the fourth example, actual delivery of virtual currency does not occur if only a book entry is made by the seller, but the actual delivery described in example 1 or example 2 has not been made, regardless of the terms of any agreement between the seller and purchaser purporting to create an enforceable delivery obligation.

In the fifth example, actual delivery of virtual currency does not occur if the sale of the virtual currency is offset or netted against or settled in cash or virtual currency (other than the virtual currency purchase in the transaction).

The Guidance reinforces many of the requirements of actual delivery from its prior guidance, including possession and control of the commodity by the purchaser within 28 days of the sale, and excluding offsets and mere book entries. What the Guidance does suggest for virtual currencies is that possession and control of the virtual currency by the purchaser can be evidenced by appropriate records on the public blockchain, directly or through a licensed depository agent. While the regulatory status of virtual currencies in the United States is still evolving, the Guidance is a welcome step towards greater certainty.

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Sam is a partner in the Chicago office in the Intellectual Property and Technology practice. He represents customers in managed services, IT procurement, complex licensing, and supply chain agreements, with a focus on the financial services industry. He is a frequent speaker on outsourcing, cloud services and blockchain.

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Karl advises asset managers and their funds on regulatory, corporate and derivatives matters. Karl has practiced in New York, London, Hong Kong and Washington, D.C., working on fund formation, listed funds, private equity and capital markets transactions.

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Christopher practices with the Firm’s Banking, Finance and Major Projects group. Christopher’s experience includes debt and equity financings for both publicly traded and private companies, domestic and cross-border going public transactions, and public and private mergers and acquisitions.

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Zlatomira Simeonova is an associate in our Corporate and Securities Practice Group in Washington, DC. Zlatomira advises clients in connection with international and domestic transactional matters, including global corporate reorganizations, securities regulation, cross-border transactions, and corporate governance.

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