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August 15, 2018

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CFTC Issues Customer Advisory on Digital Coins and Tokens

The Commodity Futures Trading Commission has issued an advisory warning customers of the dangers of purchasing digital coins or tokens. Among other things, the advisory warns customers that buying digital coins or tokens for speculative purposes carries significant risk and identifies various factors that could affect the current or longer-term value of a digital coin or token, including:

  • forks in the public ledger or other related application;

  • changes in mining or validation costs;

  • acceptance of other methods of payment in place of the digital coin or token;

  • changes to the relationship between the value of a digital coin or token and the offered product or service;

  • broad acceptance of the digital coin or token as a medium of exchange or store of value;

  • competitors or technological changes;

  • changes in demand for the underlying network or platform associated with the digital coin or token;

  • market liquidity; and

  • hacking theft.

The advisory also notes that fraud is another significant risk to consider. Potential customers should better protect themselves by conducting extensive due diligence on the digital coins or tokens, including asking whether the digital coins or tokens are securities and whether the offering is registered with the Securities and Exchange Commission.

The CFTC advisory is available here.

©2018 Katten Muchin Rosenman LLP

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About this Author

Kevin M. Foley, Finance Lawyer, Katten Llaw Firm
Partner

Kevin M. Foley has extensive experience in commodities law and advises a wide range of clients, both in the United States and abroad, on compliance with the Commodity Exchange Act and the rules of the Commodity Futures Trading Commission (CFTC) affecting traditional exchange-traded products, as well as the over-the-counter markets involving swaps and other derivative instruments. His clients include futures commission merchants, derivatives clearing organizations, designated contract markets, foreign boards of trade and an industry trade association.

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312-902-5372
James M. Brady, Katten Muchin Law Firm, Finance Attorney
Associate

James Brady concentrates his practice in financial services matters.

While in law school, James was an editor of the Michigan Journal of International Law. He also served as a judicial intern to the Honorable Stephen J. Markman of the Michigan Supreme Court. http://www.kattenlaw.com/James-Brady

312-902-5362