The VCA began as a working group in 2018 working towards the goal of establishing an industry-sponsored, self-regulatory organization for the U.S. virtual currency industry, specifically virtual commodity marketplaces.
During 2019, the VCA launched six committees, appointed two special advisors, and board leadership appointments to help set standards, sound practices, and oversight to self-regulate cryptocurrency marketplaces.
Several regulatory agencies have called upon the cryptocurrency industry to provide better oversight and surveillance of cryptocurrency markets. The VCA wants to address these concerns, while beginning to create a regulatory framework for virtual commodity marketplaces. These committees will adopt best practices and standards commonplace in traditional financial markets.
When evaluating this need, it is important to first note that the term virtual currency (often used interchangeably with the terms “digital asset,” “digital currency,” or “cryptocurrency”) can refer to different asset types including virtual commodities (e.g., bitcoin, ether) or securities. The specific designation depends on the individual facts and circumstances of each digital asset’s characteristics (e.g., speech by William Hinman, Director of the Securities and Exchange Commission (SEC) Division of Corporation Finance Speech explaining his view of the ether token). The legal status of bitcoin as a commodity was articulated by the Commodity Futures Trading Commission (CFTC) in the 2015 order against Coinflip, Inc. This order stated that “Bitcoin and other virtual currencies” fall under the definition of a “commodity” as defined in Section 1a(9) of the Commodity Exchange Act of 1936 (CEA). The order was recently favorably cited by the U.S. District Court for the Eastern District of New York, in its opinion holding that bitcoin was a commodity.
Virtual commodities like bitcoin and ether are “exempt commodities,” which means the CFTC puts them in the same category as metals and energy commodities, including gold, silver, oil, and natural gas. The cash markets (or spot markets) for exempt commodities, including virtual commodities, do not fall under the jurisdiction of the CFTC; however, the CFTC does have fraud and manipulation enforcement jurisdiction over these markets and market participants under the Commodity Exchange Act (CEA). By contrast, security tokens and cash markets for security token transactions fall under the direct jurisdiction of the SEC and the federal securities laws, rules, and regulations.
The purchase and sale of commodities in the spot/cash markets has been historically exempt from the CEA and CFTC jurisdiction. Nevertheless, cash markets for virtual commodities – as it is a less well known industry – can benefit from an additional layer of oversight. We believe that adding this layer can provide even more protection for consumers and ensure the integrity of these markets and growing industry.
The VCA is governed by a Board of Directors and capitalized by members. The Board structure (including a required number of independent directors) has been established. The primary function of the Board will be to facilitate the goals and mission of the VCA, potentially including the issuance of reports regarding the standards set forth by the VCA.
The VCA…
Board of Directors
President ‐ Yusuf Hussain (Head of Risk at Gemini Trust Company, LLC)
Secretary ‐ Zachary Figueroa (Head of Legal and Regulatory Affairs at bitFlyer USA, Inc)
Special Advisors
Ellen Zimiles and Alma Angotti (Navigant Consulting, Inc.)
Dana Syracuse (Perkins Coie, LLP)
BSA/AML
Led by: Michael Carter (Alvarez & Marsal)
Apply Bank Secrecy Act BSA/AML and Know Your Customer (KYC) controls, including blockchain analytics, transaction monitoring and investigations.
Custody and Security
Led by: Adam Cohen (Redgrave LLP) and Nicole Becher
Focus on implementing custody protections and security measures and maintaining current best practices for cryptocurrency custody, which is based heavily on cryptographic principles.
Enforcement
Led by: Philip Moustakis (Seward & Kissel, LLP)
Enforce the regulatory framework established by the VCA, keeping the VCA members accountable. This includes maintaining a system of marketplace conduct rules, implementing policies and procedures, and responding to and addressing customer concerns and complaints.
Insurance
Led by: Matthew Gaul (Mayer Brown, LLP) and Alexander Sand (Eversheds Sutherland US, LLP)
Establish minimum, appropriate insurances and coverages for cryptocurrency exchanges and custodians.
Market Integrity
Led by: Michael Roe (Exiger)
Facilitate cross-market information sharing, consolidated audit trails and cross-market surveillance to detect and deter manipulative and fraudulent activity.
Tax
Focus on establishing tax framework and interpreting and establishing tax code law as it relates to cryptocurrency trading.
