While the precise regulatory and legal status of initial coin offerings (ICOs) remains uncertain, U.S. derivatives regulators say they could be considered commodities or derivatives, depending on the specific details of a proposed offering.

The U.S. Commodity Futures Trading Commission’s (CFTC) fintech unit, LabCFTC, issued a primer on virtual currencies on Tuesday, which aims to explain how virtual currencies work, how they can be used, and sets out possible risks.

The LabCFTC report notes that the U.S. Securities and Exchange Commission (SEC) recently released a report that concluded that ICOs could be considered securities under federal securities laws.

“There is no inconsistency between the SEC’s analysis and the CFTC’s determination that virtual currencies are commodities and that virtual tokens may be commodities or derivatives contracts depending on the particular facts and circumstances,” the LabCFTC report says.

“The CFTC looks beyond form and considers the actual substance and purpose of an activity when applying the federal commodities laws and CFTC regulations,” it adds.

Additionally, the report indicates that the emerging virtual currency space may pose various risks, including operational risks, cybersecurity risks, speculative risks, and fraud and manipulation risks.
“Virtual currencies are relatively unproven and may not perform as expected (for example, some have questioned whether public distributed ledgers are in fact immutable),” the report says, adding that prospective investors and users of virtual currencies, “should educate themselves about these and other risks before getting involved.”

The paper released today is the first in a series that LabCFTC will release on various aspects of fintech innovation, the CFTC says its announcement.

“LabCFTC believes that promoting education, understanding, and regulatory clarity around emerging technologies can help facilitate market-enhancing innovation and guard against risks,” says Daniel Gorfine, director of LabCFTC, in a statement. “As people worldwide try to understand and wrap their heads around the virtual currency ecosystem, we thought it timely and important for our first primer to help explain the space, identify how developments involve the CFTC, and highlight risks that investors or users of virtual currencies should carefully consider.”