Virtual Currencies as Commodities: Is Bitcoin a Currency, a Commodity, or Both?

Book: Commodities: Markets, Performance, and Strategies
Editors: H. Kent Baker, Greg Filbeck, Jeffrey H. Harris
ISBN: 9780190656010
Chapter 26: Virtual Currencies as Commodities (Lamia Chourou, Samir Saadi & Azizah Aljohani)

When this book was published in 2018, Bitcoin was having a moment. Market cap had gone from about $144 million in 2013 to over $16 billion by early 2017. The NYSE invested in Coinbase. Nasdaq software powered Noble Markets’ Bitcoin platform. Hedge funds like GABI got regulatory approval in Jersey. And the CFTC ruled that virtual currencies are commodities.

Chourou, Saadi, and Aljohani try to make sense of a space that was moving faster than regulators and academics could keep up. The chapter is dated in places (722 cryptocurrencies listed in 2017, Mt. Gox breach dated 2016 in the text), but the framework still helps if you want to understand why crypto landed in a commodities textbook.

What are virtual currencies?

Virtual currency (cryptocurrency, digital currency) is a medium of exchange not issued by a government. Bitcoin is the big name, but Litecoin, Peercoin, Dogecoin, Primecoin, and privacy-focused coins like Darkcoin (now Dash) each took a different technical path.

Bitcoin’s key features:

• Decentralized peer-to-peer network, no central bank
• Public blockchain ledger of all transactions
• Mining rewards (25 BTC per 10 minutes when written, capped at 21 million total)
• Pseudonymous addresses, not fully anonymous
• High electricity use (about 1.46 terawatt-hours per year in 2015 estimates)

Litecoin confirms blocks faster. Peercoin uses less energy and has no supply cap. Dogecoin targets micro-transactions with low unit value.

Currency, commodity, or something else?

Yermack argued Bitcoin is not a real currency. It is a speculative asset. Grinberg compared it to gold-backed digital money but noted three differences: no central issuer, fiat not commodity-backed, and hard-to-regulate decentralized structure.

The IMF said VCs blend currency, commodity, and payment system properties. Different U.S. agencies classify them differently. The IRS treats Bitcoin as property for tax. FinCEN treats it as “value” for anti-money-laundering rules. The CFTC called it a commodity in 2015. Canada treats it as barter for tax. China called it a “virtual commodity” and banned banks from handling it.

The chapter focuses on Bitcoin because it dominates research and media attention.

How Bitcoin works (simply)

Users run software with a wallet and keys. Public keys receive payments. Private keys authorize sends. Miners solve math problems to validate blocks every ~10 minutes. Transactions are irreversible once confirmed. Fees go to miners as implicit transaction costs.

The chapter notes that low advertised fees are partly subsidized by new coin issuance. As supply caps bind and usage grows, fees may need to rise unless technology changes.

Benefits and risks

Upside: No bank middleman, potentially lower payment costs (especially cross-border), 24/7 availability, fraud resistance via blockchain, and applications beyond payments (bonds, shares, smart property).

Downside: Extreme volatility, illicit use (though U.K. National Crime Agency saw limited systemic crime risk in 2014), exchange hacks (Mt. Gox), bank reluctance to open accounts for crypto businesses, and arbitrage/collusion risk across unregulated exchanges.

Bitcoin’s monthly volatility was 265% between 2012 and 2015 vs. 118% for gold. Large trades move thin markets. News swings prices hard. Early adopters made millions. Late buyers lost millions. Classic boom-bust.

Academic work is split on whether fundamentals or pure speculation drive price. Guesmi, Ftiti, Saadi, and Abid found financial market shocks raise Bitcoin volatility and that Bitcoin can hedge other assets in some portfolios.

Regulation snapshot (as of book publication)

• U.S.: Senate hearings, FinCEN guidance, BitLicense in New York, Silk Road Bitcoin auctions
• Brazil: Taxable gains on Bitcoin
• Canada: Miners as money service businesses
• China: Banks barred from Bitcoin; defined as virtual commodity
• Russia: Proposed fines, de facto ban
• U.K.: Studying benefits and risks; Bank of England asked if central banks should issue digital currency
• EU: Warnings but no unified law

The SEC rejected the Winklevoss Bitcoin ETF in March 2017, citing unregulated exchanges and manipulation risk. Bitcoin dropped 16% on the news.

Future angles

The authors see promise in blockchain tokenization (Apple Pay and Visa moves echo crypto ideas), smart property (digital keys for cars, rentals, patents), and possible evolution toward commodity-backed digital money by 2050. They also warn the technology may outlive any single coin.

My take

This chapter is a solid 2018 snapshot, not a 2026 trading guide. Bitcoin and the regulatory landscape have changed enormously since. But the core question remains relevant for commodity investors: when an asset has fixed supply, high volatility, no government backing, and CFTC commodity status, how do you fit it in a portfolio or risk framework?

The book treats crypto as a cousin to commodities more than to currencies. That classification choice still shapes which agency regulates it and how futures and options can be listed. Worth knowing even if you never buy a satoshi.

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