CFTC Spot Crypto Trading Rule: Will It Affect Money Transmission Cases?
R Tamara de Silva
For more than a decade, American retail investors seeking leveraged exposure to crypto markets have been pushed offshore, while domestic innovators faced legal risks simply for trying to operate in the United States. In the absence of a clear regulatory pathway, prosecutors have at times treated crypto trading and legitimate arbitrage as if they were unlicensed money transmission. The result is a system that disadvantages U.S. investors, criminalizes entrepreneurial and trading activity, and cedes market leadership to foreign exchanges. The CFTC’s new Listed Spot Crypto Trading Initiative matters because it could close this gap thereby protecting investors and perhaps helping to ensure that bona fide investment activity is treated as trading, not as a crime.
Background: Leveraged Crypto Trading and the “Actual Delivery” Rule, and Bitcoin’s Commodity Status
Under existing law, the CFTC already has jurisdiction over retail commodity transactions that involve leverage, margin, or financing, which includes certain crypto trading offerings. Section 2(c)(2)(D) of the Commodity Exchange Act (CEA) effectively requires that if you offer retail customers a commodity on leverage or margin and don’t deliver the commodity to the buyer within 28 days, that transaction is treated “as if” it were a futures contract and must occur on a regulated exchange (a DCM). This statutory provision, sometimes called the “actual delivery” rule, was designed to prevent unregulated trading of things like precious metals to retail customers and has since been applied to crypto assets.
The CFTC first made clear in its 2015 Coinflip enforcement action that Bitcoin and other virtual currencies are “commodities” under the CEA. In that case, the Commission charged Coinflip, Inc. with unlawfully operating an unregistered platform for Bitcoin options trading. The finding established that Bitcoin falls within the CFTC’s commodity jurisdiction and set the stage for broader regulatory oversight of crypto derivatives. Federal courts have since endorsed this view. In CFTC v. McDonnell (E.D.N.Y. 2018), for example, the court confirmed that virtual currencies meet the statutory definition of commodities, affirming the CFTC’s authority to police fraud and manipulation in the spot crypto markets.
In 2020, the CFTC approved interpretive guidance clarifying what counts as “actual delivery” of a digital asset in this context. According to that guidance, to avoid CFTC regulation a crypto trade must result in the buyer obtaining possession and control of the entire quantity of the asset (free from any liens or restrictions by the seller or platform) within 28 days, and the seller (and any affiliated platform) must entirely relinquish control over the asset after that period. In practical terms, this means the crypto actually has to be delivered into the buyer’s personal wallet or account, away from the exchange, within 28 days, otherwise the transaction is subject to CFTC oversight as a de facto futures contract.
Enforcement actions in recent years have shown the importance of this rule. For example, in 2021 the CFTC fined the Kraken crypto exchange for offering margined retail crypto trading without registering as a DCM or futures commission merchant (FCM). Kraken’s program allowed users to trade crypto offering margined retail commodity transactions to the public without required registration. while Kraken retained custody of the crypto throughout, meaning no actual delivery occurred within 28 days. The CFTC deemed this illegal off-exchange retail commodity trading. Notably, even one of the CFTC’s own Commissioners at the time remarked that there was “no clearly articulated path” for exchanges like Kraken to legally offer margin crypto products under the existing rules, and she urged the agency to develop “clear ‘rules of the road’” for regulated crypto trading.
Despite the CFTC’s 2020 guidance on actual delivery and the theoretical requirement that leveraged crypto trades belong on regulated exchanges, no U.S. futures exchange (DCM) has yet listed any leveraged or financed spot crypto product. A legal framework existed on paper, but in practice there was no workable route to offer “Retail Crypto Contracts.” This gap between regulation and market reality is precisely what the new CFTC initiative seeks to bridge.
The CFTC’s “Listed Spot Crypto Trading” Initiative
On August 4, 2025, Acting CFTC Chairman Caroline D. Pham announced the initiative to establish a framework for listing and trading retail crypto contracts on DCMs. Rather than waiting for new legislation, the CFTC is relying on its existing authority under the CEA to move forward. Commissioner Pham called it a “clear and simple solution” to “enable immediate trading of digital assets at the federal level” using tools already available.
The initiative also responds to the White House Digital Asset Policy Report, which urged regulators to act quickly using existing powers. The agency has emphasized speed, opening a public comment period that closed just two weeks after the announcement.
The proposal could be transformative. It would allow leveraged spot crypto contracts to trade on regulated U.S. exchanges for the first time, channeling activity back into markets where surveillance, capital requirements, and customer protections already exist. For investors, this could mean safer, more transparent access to the types of leveraged products that offshore platforms currently dominate.
When Trading Becomes Transmission: The Legal Risks of Regulatory Uncertainty
The absence of a clear, regulated path in the United States has not only driven trading offshore, it has also created serious legal risks for firms that tried to operate domestically. Without defined rules for leveraged spot crypto trading, regulators and prosecutors have sometimes recast these businesses as unlicensed money transmitters under federal law. Section 1960 of the U.S. Code, along with FinCEN’s money services regulations, has been used to charge platforms with operating illegally simply because they held custody of customer assets or facilitated transfers in ways regulators analogized to money transmission.
Courts have already shown a willingness to apply these laws broadly, reaching scenarios that look more like trading than remittance. In United States v. Costanzo (D. Ariz. 2018), the defendant described himself as a bitcoin trader engaged in repeated purchases and sales. By that time, Bitcoin had already been recognized as a commodity subject to CFTC oversight in fraud cases, which made the conviction under § 1960 significant. The court nonetheless upheld his conviction under § 1960, treating these activities as an unlicensed money transmitting business. Although defendants in cases like Costanzo often portrayed their conduct as trading, courts looked to the mechanics and concluded that accepting value from others and delivering cryptocurrency in exchange constituted transmission under the statute. In other cases, such as United States v. Murgio (S.D.N.Y. 2016), courts allowed § 1960 charges against exchange operators to proceed on the theory that accepting fiat and delivering cryptocurrency at customer direction amounted to “transferring funds on behalf of the public.” Similarly, in United States v. Harmon (D.D.C. 2020), the operator of a Bitcoin “mixer” was convicted under § 1960 because his business involved receiving bitcoin from customers and sending it elsewhere, conduct the court found satisfied the statutory definition of unlicensed money transmission.
These cases show how, in the absence of a clear regulatory path for listed spot crypto trading, authorities have used money transmission laws to criminalize what might otherwise have been understood as market-making or trading activity. Courts have consistently rejected arguments that Bitcoin’s classification as a “commodity” under the Commodity Exchange Act excludes it from the definition of “funds” in § 1960. In cases such as Murgio and Phillips, courts defined “funds” broadly to include virtual currencies, reasoning that Bitcoin functions as a medium of exchange and a store of value, much like gold or other commodities. This expansive definition has allowed prosecutors to rely on § 1960 even where the conduct more closely resembled trading activity.
The question now is whether the CFTC’s initiative will alter this trajectory. If leveraged spot crypto contracts can trade openly on U.S. designated contract markets under CFTC supervision, prosecutors may have less incentive to rely on § 1960 to characterize trading businesses as unlicensed money transmitters. Instead, compliance would turn on whether a firm properly registers with the CFTC and operates within that framework. In this way, the initiative could mark the line between criminal prosecution and lawful participation in regulated markets.
Protecting Retail Investors
The lack of a domestic framework has also pushed American retail investors into less safe and often unregulated waters. Offshore exchanges dominate global trading volume by offering leveraged spot products that U.S. platforms cannot provide. Investors who follow them abroad often face substandard protections, little to no fund segregation, weak risk management, and virtually no legal recourse in the event of fraud or collapse.
By contrast, listed spot crypto contracts on U.S. exchanges would fall under well-developed regimes for custody, surveillance, and capital adequacy. For retail investors, the difference between offshore speculation and domestic listed trading could be the difference between safety and ruin.
The difference between FTX and FTX.US illustrates this point. FTX US Derivatives (LedgerX LLC), the CFTC-regulated affiliate of FTX, operated as a Derivatives Clearing Organization, Swap Execution Facility, and Designated Contract Market, and it remained solvent in the FTX bankruptcy. FTX.US operated under the CFTC’s customer protection and segregation rules. As a result, FTX.US customers did not lose their funds when the broader FTX platform collapsed. That outcome demonstrates the effectiveness of the CFTC’s oversight regime. Listed spot crypto trading under CFTC authority could extend these same safeguards to retail crypto markets, reducing the need for prosecutors to stretch § 1960 and instead anchoring compliance in the established regulatory framework. For further analysis of how regulated entities fared during the FTX collapse, see Towards Customer Protection: What the Futures Industry Can Teach Crypto.
A regulated market also brings important systemic benefits. By channeling retail activity back to U.S. exchanges, regulators gain visibility into trading flows and can more effectively monitor for manipulation, abuse, and emerging risks. This transparency strengthens overall market integrity and provides regulators with tools to step in before retail investors suffer large-scale losses. Moreover, clear rules lower the risk that retail traders inadvertently participate in transactions later deemed unlawful, as has happened in prosecutions under § 1960. With a lawful, supervised venue available, retail participants can engage in crypto trading without fear that the ground will shift beneath them.
CFTC supervision offers substantially greater protection for retail participants than exchanges that are merely registered as money services businesses (MSB).
CFTC supervision offers substantially greater protection for retail participants than exchanges that are merely registered as money services businesses (MSBs). The difference lies in the regulatory architecture. Under the CFTC’s regime, customer funds must be segregated from firm capital, preventing the commingling that led to catastrophic losses in unregulated platforms. Markets are transparent and continuously monitored in real time by both exchanges and regulators, enabling the detection of manipulation or irregular trading patterns. Firms must maintain robust risk controls, including margining systems that manage leverage and protect against counterparty defaults. These safeguards create a resilient framework where losses are contained, oversight is constant, and investor protections are not theoretical but actively enforced. By contrast, MSB registration imposes little more than basic anti-money laundering and reporting requirements, leaving retail participants without meaningful financial protections.
Allowing leveraged retail crypto products to trade on designated contract markets (DCMs) would place them under the full scope of Core Principles and customer protection requirements that govern these exchanges. That means American investors could access competitive products while benefiting from the same robust oversight mechanisms that make U.S. markets the global benchmark for integrity and fairness. Domestic exchanges could finally compete with offshore platforms without lowering standards, potentially repatriating significant trading volume and reinforcing the United States as the preferred jurisdiction for serious crypto market participants.
In addition, protecting retail investors helps preserve confidence in U.S. financial markets broadly. When retail traders lose faith after exposure to unsafe offshore exchanges, trust in the system erodes. By ensuring that leveraged spot crypto products are only offered in regulated environments, the CFTC can rebuild confidence, draw capital back onshore, and give retail participants a fair chance to access opportunities without sacrificing security.
The collapse of FTX also highlighted the danger of inadequate auditing and misleading assurances around proof of reserves. As I have discussed in my article, FTX’s Auditors and Proof of Reserves, the absence of rigorous oversight and reliance on unreliable attestations left customers exposed.
In contrast, CFTC‑regulated entities are subject to strict financial reporting, independent audits, and segregation requirements that provide real protections rather than illusory assurances. Extending this framework to spot crypto products would help prevent the recurrence of such failures, giving investors confidence that platforms cannot hide insolvency behind opaque accounting practices.
Conclusion
The CFTC’s Listed Spot Crypto Trading Initiative may close a significant regulatory gap that has criminalized trading, driven investors offshore, and left retail participants vulnerable to unsafe platforms and unclear legal standards. By creating a regulated pathway for leveraged spot crypto, the Commission can help ensure that U.S. markets remain both competitive and secure. Retail investors would no longer face the choice between inefficient domestic options and risky offshore venues.This initiative has the potential to protect market participants and draw significant trading activity to the United States under the protections of designated contract markets. Just as importantly, it may provide a regulatory framework that reduces reliance on § 1960’s broad “funds” definition, ensuring that bona fide trading is regulated through registration and oversight rather than prosecuted as unlicensed transmission.
Market participants should monitor this initiative closely and assess how it may affect their compliance strategies and trading operations.
Sources
Cases
United States v. Costanzo, 956 F.3d 1088 (9th Cir. 2020)
(upholding conviction under § 1960; defendant characterized himself as a Bitcoin “trader,” but court found his conduct, accepting cash and delivering Bitcoin, constituted unlicensed money transmission).United States v. Murgio, 209 F. Supp. 3d 698 (S.D.N.Y. 2016)
(denying motion to dismiss § 1960 indictment; operation of Bitcoin exchange deemed “transferring funds on behalf of the public”; rejecting argument that Bitcoin’s commodity status excludes it from the definition of “funds”).United States v. Harmon, 474 F. Supp. 3d 76 (D.D.C. 2020)
(holding operator of Bitcoin “mixer” was an unlicensed money transmitter because business involved receiving Bitcoin from customers and transmitting it elsewhere to obscure its origin).United States v. Phillips, No. 22-CR-6058CJS, 2022 WL 16855296 (W.D.N.Y. Nov. 17, 2022)
(rejecting argument that Bitcoin, as a commodity, falls outside scope of “funds”; court held “funds” encompasses virtual currencies functioning as a medium of exchange).CFTC v. McDonnell, 287 F. Supp. 3d 213 (E.D.N.Y. 2018)
(holding virtual currencies are “commodities” under the Commodity Exchange Act; affirming CFTC jurisdiction over fraud and manipulation in spot crypto markets).In re Coinflip, Inc., CFTC No. 15-29, 2015 WL 5535736 (Sept. 17, 2015)
(CFTC enforcement action declaring Bitcoin and other virtual currencies are “commodities” under the CEA).
Agency and Secondary Materials
- CFTC Press Release, Acting Chairman Pham Launches Listed Spot Crypto Trading Initiative, Release No. 9105-25 (Aug. 4, 2025), available at https://www.cftc.gov/PressRoom/PressReleases/9105-25.
- CFTC Press Release, Final Interpretive Guidance on Actual Delivery for Digital Assets (Mar. 24, 2020), available at https://www.cftc.gov/PressRoom/PressReleases/pressrelease8169-20.
- White House Fact Sheet, President’s Working Group on Digital Asset Markets Report (Jul. 30, 2025), available at https://www.whitehouse.gov/briefing-room/statements-releases.
- R. Tamara De Silva, Towards Customer Protection: What the Futures Industry Can Teach Crypto (Aug. 6, 2024), available at https://www.desilvalawoffices.com/articles/blog/2024/august/towards-customer-protection-what-the-futures-ind.
- R. Tamara De Silva, CFTC Commissioner on the Crisis of Trust Post‑FTX (Jan. 12, 2023), available at https://www.desilvalawoffices.com/articles/blog/2023/january/cftc-commissioner-on-the-crisis-of-trust-post-ft.
- R. Tamara De Silva, FTX’s Auditors and Proof of Reserves (Dec. 29, 2022), available at https://www.desilvalawoffices.com/articles/blog/2022/december/ftxs-auditors-and-proof-of-reserves.
- CoinDesk, Kraken to Pay $1.25M Fine After Settling Charges With CFTC (Sept. 28, 2021), available at https://www.coindesk.com/business/2021/09/28/kraken-to-pay-125m-fine-after-settling-charges-with-cftc.
- R. Tamara De Silva, The Crypto Market Bill Explained: Analyzing the CFTC Clarity Act (May 2025), available at https://www.desilvalawoffices.com/articles/blog/2025/may/the-crypto-market-bill-explained-analyzing-the-c.