Photo credit: Diego Radzinschi/ALM.

A federal judge in New York ruled this week that virtual currencies can be regulated by the U.S. Commodity Futures Trading Commission.

So now that a court has deemed the CFTC has jurisdiction over bitcoin and other cryptocurrencies, much like it oversees gold and oil, what will the effects be on this quickly emerging sector?

While many lawyers who work with virtual currencies find the ruling to be significant, they also emphasized that the 79-page order doesn't mean the CFTC will be the only sheriff in town when it comes to overseeing cryptos.

Tuesday's ruling from U.S. District Judge Jack Weinstein of the Eastern District of New York provided some clarity on issues that companies and lawyers in the crypto space have been considering for some time.

The CFTC sued Patrick McDonnell and his company CabbageTech Corp. in January, alleging fraud and misappropriation connected to cryptocurrency purchases. Pro se litigant McDonnell attempted to have the suit thrown out for lack of jurisdiction, but the judge ruled in favor of the CFTC.

Weinstein provided answers to two burning questions: Is virtual currency a commodity and does the CFTC have jurisdiction over fraud that does not directly involve the sale of futures or derivative contracts? Yes, on both accounts, Weinstein wrote.

“CFTC has standing to exercise its enforcement power over fraud related to virtual currencies sold in interstate commerce,” Weinstein wrote.

A CFTC spokeswoman declined to comment on the judgment, but added, “We will just let the order speak for itself.”

The CFTC has taken other enforcement actions in recent months against companies and individuals believed to have defrauded investors in the virtual currency space, and Chairman Christopher Giancarlo recently testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs on how Congress could be involved in creating legislation around cryptocurrency.

James Walker, an attorney at Richards Kibbe & Orbe, found Weinstein's ruling to be “a win for securities regulators by providing a stronger basis for asserting jurisdiction by multiple regulators without diminishing any single regulator's power.”

Walker said it is noteworthy that the ruling does not contradict the 2014 Internal Revenue Service determination that virtual currencies are property. He added that while virtual currency at times operates like regular currency it “does not have legal tender status.”

According to Edward Baer, counsel at Ropes & Gray, just because the court ruled that the CFTC can regulate cryptocurrency, doesn't mean there won't be others policing this area as well. U.S. Securities and Exchange Commission Chairman Jay Clayton has also adamantly argued that cryptocurrencies, in many cases, should be considered securities.

“The challenge for cryptocurrency exchanges and investors, as well as for regulators such as the SEC and CFTC, will be to determine which of the over 1,000 types of these cryptocurrencies are securities and which ones are not,” Baer said in an email. “Given that the test used to determine whether an instrument is a security was developed more than 60 years before Satochi Nakamoto published the paper describing bitcoin, the uncertainty around the regulatory treatment of most cryptocurrencies will remain despite Judge Weinstein's ruling.”

Nimish Patel, a partner and vice chairman of Mitchell, Silberberg & Knupp, acknowledged the ruling does give guidance to the markets, but is quick to warn companies that they may also have to answer to the Financial Crimes Enforcement Network.

“I think startups are on notice you're going to have to deal with multiple regulatory bodies,” Patel said. “Every agency wants to feel like they have a say in this growing ecosystem that is developing.”