Adam Tracy Discusses Copy Trading & Managed Crypto Wallets

Cryptocurrency attorney Adam S. Tracy explains the laws surrounding copy trading and how they effect managed cryptocurrency wallets

Adam S. Tracy:
Copy trading is big. It’s always been big in Forex and it’s getting incrementally bigger in crypto, and what copy trading is, is where an experienced trader gains access to a platform and the client allocates certain amounts of his or her account and those trades are made automatically. They just basically copy what the experienced trader is doing and you see a lot of groups trying to emulate that in the crypto space through APIs and whatnot.

Adam S. Tracy:
Just focusing on Bitcoin, let’s talk about the legality of copy trading, what you could in theory have to do in this exceedingly gray area. When you’re talking about copy trading, and you’re talking about Bitcoin, let’s go from the premise that Bitcoin is a commodity, and let’s work from the Forex example where copy trading sort of originates from and then we’ll do, we’ll go to the equity side, to the security side.

Adam S. Tracy:
Generally speaking, if you are going to do copy trading, which contemplates automatic investing, investing where the trades that the client makes are generated by the software, by the signal provider, by the “experienced trader”, generally speaking you need to be registered as a commodities trading advisor and that is because you’re providing investment advice regarding the investment or trading of futures products.

Adam S. Tracy:
This is governed by the CFTC, not the SEC. In most cases, to become a CTA you have to one, register obviously with the CFTC but also register with the NFA, the National Futures Association and that would provide you with the ability, and this is sort of the hook if you will, the ability to have the automatic trading. In the absence of the automatic trading, you may have to be something called an introducing broker, but going from the basis that you’re trading off an API and how these work, well it looks like, from my perspective, in my opinion, that you would have to be a licensed a commodities trading advisor.

Adam S. Tracy:
So, and that process is in terribly difficult to go through, but it does require registration with the CFTC and again the NFA. There are some exceptions to that, and that’s when your trading algorithm or your trading, your signal provider, if you want to call it that, is numerically based. Where it’s based on a formulaic capacity or general numeric qualifiers. If the price of Bitcoin futures reaches $6,000, it’s an automatic sell. Something like that. Something that’s nuanced and driven less by the intuition and knowledge of the signal provider and more so from particular formulas or static market conditions.

Adam S. Tracy:
The question becomes, “I want to manage crypto wallets. What do I do? Can I do it?” Well, I think by the strictest interpretation, I think you need to become a commodity trading advisor if you want to manage these wallets, and that’s because Bitcoin technically is a commodity.

Adam S. Tracy:
Now, last week we had the SEC come out and say that they’re not going to regulate Ethereum. The question becomes, “Does Ethereum fall back into the definition of a commodity,” and generally speaking, the CFTC has considered Ethereum to be a commodity since its inception. I think that’s the direction we’re going. At the end of the day, Bitcoin has to be something. Ethereum has to be something. It’s a digital asset and if it’s a currency, then derivative products, which would be what you see on akin to like a Forex, those are commodities and those are going to be regulated.

Adam S. Tracy:
I think the short answer is if you want to do managed wallets, if you want to lock in with an API and do copy trading, which is effectively what a managed wallet is, then I think that spurs the need for CTA Registration and NFA registration. It’s probably not what a lot of people want to do, but I think at the end of the day, that’s where it’s going to go, and it’s the only way that you can look at it and truly say that you’re insulated from potential regulatory liability if you have that registration.

Adam S. Tracy:
Now, the opposite end of the spectrum is sort of if you’re going to trade ICO tokens that may be securities because then you’re looking at a registered investment advisor registration, which I’ll talk about in a future bit, but for the short and quick answer of, “What do I need if I want to manage wallets through either, through an API or some sort of copy trading format?” The answer is a CTA and NFA registration with the exception being that you have some sort of algorithmic or automatic trading system that’s predicated upon a computer system and arbitrarily defined by numbers.

Adam S. Tracy:
Check me out, tracyfirm.com if you have questions. This area’s rapidly evolving. You’ve got people coming out and saying that things are and aren’t securities or commodities every single day. So, what I’m telling you today could be completely worthless tomorrow. Hopefully it’s not, but yeah, hit me up at@tracyfirm.com, bitcoin-lawyer.org.

Adam S. Tracy:
I will talk to you later.

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A former competitive rugby player, serial entrepreneur and, trader attorney, Adam S. Tracy offers over 17 years of progressive legal and compliance experience in the areas of corporate, commodities, cryptocurrency, litigation, payments and securities law. Adam’s experience ranges from commodities trader for oil giant BP, initial public offerings, M&A, to initial coin offerings, having represented both startups to NASDAQ-listed entities. As an early Bitcoin adapter, Adam has promoted growth of cryptocurrency and offers a unique approach to representing crypto-clients. Based in Chicago, IL, Adam graduated from the University of Notre Dame with dual degrees in Finance and Computer Applications and would later obtain his J.D. and M.B.A. from DePaul University. Adam lives outside Chicago with his six animals, which is illegal where he lives.

Primary website: http://www.tracyfirm.com
Twitter: https://twitter.com/TracyFirm
Youtube: http://www.youtube.com/c/AdamSTracy
Linkedin: https://www.linkedin.com/in/adamtracy/
Facebook: https://www.facebook.com/thetracyfirm/
Instagram: @adamtracyattorney
Telegram: @adam_tracy
Skype: @adamtracyesq
Email me: at@tracyfirm.com

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