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U.S. Judge Ruling Cryptocurrencies As Commodity Caused Bitcoin To Fall

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Bitcoin eased back from earlier losses on Wednesday, after falling more than 7% after a U.S. federal judge ruled cryptocurrencies can be regulated as a commodity by the U.S. Commodity Futures Trading Commission.

Bitcoin was trading at $10,612, down 2.54% as of 8:05 AM ET (13:05 GMT) on the Bitfinex after hitting a low of $10,453. Bitcoin has struggled to stay above $11,000 since it hit a two-month low of $6,000 in early February.

On Tuesday U.S. District Judge Jack Weinstein ruled that the CFTC could file a fraud lawsuit against New Yorker Patrick McDonnell and his company Coin Drop Markets. The agency has considered Bitcoin to be a commodity since 2015 and Weinstein’s ruling upholds that decision.

However Securities and Exchange Commision Chairman Jay Clayton has suggested that some forms of cryptocurrencies, such as initial coin offerings (ICOs) are in fact securities and should be regulated as such.

As the virtual currencies grow in popularity, regulators around the world have been debating about the best way to regulate cryptocurrencies.

The uncertainty of virtual currency regulation is likely to continue, despite Weinstein’s ruling, Ed Baer, investment management counsel at Ropes & Gray law firm, said in an email.

“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.

Digital currencies were also held back by news that South Korea banned government officials from holding and trading cryptocurrencies, and could be subject to disciplinary actions even if their jobs have nothing to do with digital currencies.

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Meanwhile virtual currency exchange platform Coinbase announced it will introduce a weighted index fund aimed at first-time cryptocurrency investors. It would be the firm’s first foray into the asset management industry and would give investors access to all assets listed on Coinbase’s institutional exchange, weighted by market capitalization.

Other virtual currencies were down, with rival Ethereum, the world’s second largest cryptocurrency by market cap, falling 5.09% to $788.26 on the Bitfinex exchange. Ripple, the third largest virtual currency, was down 3.20% to $0.90 while Litecoin was last at $193.82, a decrease of 3.98%.