On March 24, 2020, the CFTC voted to issue final interpretive guidance (2020 Guidance) on the term "actual delivery" under Section 2(c)(2)(D)(ii)(III)(aa) of the Commodity Exchange Act (CEA), which details and reemphasizes that the two primary factors necessary to demonstrate actual delivery of retail commodity transactions in virtual currency, as stated in its proposed interpretative guidance issued December 20, 2017 (2017 Guidance) are that:

(See Legal Update, CFTC Proposes Legal Interpretation of Actual Delivery Exception for Virtual Currency Regulation.)

The 2020 Guidance states that the CFTC continues to believe that actual delivery occurs when the offeror and counterparty seller, including their agents, cease to retain any interest, legal right, or control whatsoever in the virtual currency acquired by the purchaser at the expiration of 28 days from the date of entering into the transaction. The CFTC believes, under the 2020 Guidance that, in the context of an actual delivery determination in virtual currency, physical settlement involving the entire amount of purchased commodity must occur.

In the context of virtual currency, such a transfer of the commodity to a separate entity from the offeror and the offeror’s execution venue, when applicable establishes that a customer achieves both:

The 2020 Guidance specifies that the two central tenets of actual delivery are demonstrated when there is both:

The 2020 Guidance states that, in interpreting the term actual delivery for the purposes of CEA Section 2(c)(2)(D)(ii)(III)(aa), which was added pursuant to section 742(a) of the Dodd-Frank Act, the CFTC will continue to "employ a functional approach and examine how the agreement, contract, or transaction is marketed, managed, and performed, instead of relying solely on language used by the parties in the agreement, contract, or transaction."

Under the 2020 Guidance, actual delivery of virtual currency connotes the ability of a purchaser to either:

Section 2(c)(2)(D) of the CEA grants the CFTC direct oversight authority over retail commodity transactions, defined as agreements, contracts, or transactions in any commodity that are either:

The 2020 Guidance clarifies and restates that, as stated in the 2017 Guidance, the CFTC considers virtual currency, such as bitcoin, to be a commodity as defined under Section 1a(9) of the CEA, similar to other intangible commodities that the CFTC oversees and therefore views it as subject to applicable provisions of the CEA and CFTC regulations (see Legal Update, CFTC: Bitcoin a “Commodity” Subject to Dodd-Frank Swaps Rules). However, CEA section 2(c)(2)(D)(ii)(III)(aa) excepts contracts of sale that result in actual delivery of the underlying commodity within 28 days from the date of the transaction from being considered "commodity interests" subject to CFTC regulations.

In the 2020 Guidance the CFTC states the concept of "title" has not fully developed in the context of virtual currency. The CFTC will continue to follow the term’s evolution. The 2020 Guidance states the CFTC does not believe efforts to further define or utilize “title” in the examples of the 2020 Guidance will provide appropriate clarity at this time.

To avoid further confusion, the CFTC clarifies in the 2020 Guidance that:

The CFTC notes in the 2020 Guidance that:

Effect of Liens on Actual Delivery. One of the central tenets of the 2017 Guidance is that to achieve actual delivery in the context of digital assets serving as a medium of exchange, the offeror and counterparty seller (including any affiliates) cannot retain interest or control over any of the virtual currency in question at the expiration of 28 days from the date of the transaction.

Under the 2020 Guidance:

Effect of conflicts of interest in actual delivery. In the 2017 Guidance, the CFTC specifically sought comment regarding potential "bucket shop" arrangements, where an offeror may act as principal to a trade and take the opposite side of a retail commodity transaction, especially within a self-contained environment. In the 2020 Guidance the CFTC states that, in the context of virtual currency, an offeror’s ability to take the opposite side of a retail commodity transaction may create situations in which actual delivery fails.

In connection with the statutory authority, the CFTC originally issued a proposed interpretation of the term “actual delivery” in the context of CEA section 2(c)(2)(D), accompanied by a request for comment in Retail Commodity Transactions Under Commodity Exchange Act dated December 14, 2011 (2011 Guidance). In that interpretation, the CFTC provided several examples of what may and may not constitute actual delivery. After reviewing public comments, the CFTC issued a final interpretation in Retail Commodity Transactions Under Commodity Exchange Act dated August. 23, 2013 (2013 Guidance).

The 2020 Guidance provides two examples of cases where actual delivery has occurred and three examples of cases where actual delivery has not occurred.

Example 1: An example of a case where actual delivery of virtual currency occurs is a situation in which within 28 days of entering into an agreement, contract or transaction, a record exists on the relevant public distributed ledger network or blockchain of the transfer of virtual currency and:

Example 2: Another example of a case where actual delivery occurs is where, within 28 days of entering into a transaction, each of the following events have occurred:

Example 3: An example of a case where actual delivery will not have occurred is if, within 28 days of entering into a transaction, the full amount of the purchased commodity is not transferred away from a digital account or ledger system owned or operated by, or affiliated with, the offeror or counterparty seller (or their respective execution venues) and received by a separate, independent, appropriately licensed, depository or blockchain address in which the customer maintains possession and control, as in Example 2.

Example 4: An example of a case where actual delivery will not have occurred is if, within 28 days of entering into a transaction where a book entry is made by the offeror or counterparty seller purporting to show that delivery of the virtual currency has been made to the purchaser, but the counterparty seller or offeror has not, in accordance with the methods described in Example 1 or Example 2, actually delivered the entire quantity of the virtual currency purchased, including any portion of the purchase made using leverage, margin, or financing, and transferred title to that quantity of the virtual currency to the purchaser, regardless of whether the agreement, contract, or transaction between the purchaser and offeror or counterparty seller purports to create an enforceable obligation to deliver the commodity to the purchaser.

Example 5: Another example of a case where actual delivery will not have occurred is if, within 28 days of entering into a transaction, the agreement, contract, or transaction for the purchase or sale of virtual currency is rolled, offset against, netted out, or settled in cash or virtual currency (other than the purchased virtual currency) between the customer and the offeror or counterparty seller (or persons acting in concert with the offeror or counterparty seller).

The CFTC states in the 2020 Guidance that it has decided to use the virtual currency definition included in the 2017 Guidance for purposes of the 2020 Guidance. Under this definition, virtual currency is a digital asset that encompasses any digital representation of value or unit of account that is or can be used as a form of currency (i.e., transferred from one party to another as a medium of exchange), which:

However, the CFTC notes in the 2020 Guidance that it does not intend to create a bright-line definition given the evolving nature of the commodity, and states that it will continue to interpret the term virtual currency broadly.

For more information on virtual currency regulation, see Practice Notes: