Cryptocurrency and the SEC: How a Piecemeal Approach to Regulating New Technology Selectively Stifles Innovation

The Securities and Exchange Commission (SEC) recently took steps to regulate certain forms of cryptocurrency as substitute securities. However, the SEC has not provided clear guidance regarding which forms of cryptocurrency it deems worthy of regulation. This creates a dilemma. While some cryptocurrencies, like those involved in capital-raising via initial coin offerings (ICOs), do indeed seem like securities, others do not. For example, J.P. Morgan is developing a cryptocurrency that appears to be more like fiat currency than a security. This Note discusses how the SEC recently convinced a federal judge that certain ICO-related cryptocurrencies can be considered securities under the Howey test, as well as how the major questions doctrine—which asserts that issues of major importance should not be left to the discretion of federal agencies absent clear congressional guidance—relates to the topic of cryptocurrency regulation. Furthermore, this Note discusses why it is undesirable that the SEC is regulating cryptocurrency without clear guidance from Congress regarding which cryptocurrencies the Commission has the authority to regulate. Because cryptocurrency is such a rapidly developing field, the gray area between forms of cryptocurrency that seem to be securities and those that do not will only become more complex. As a result, piecemeal cryptocurrency regulation will continue to deprive innovators of sufficient guidance regarding issues such as whether their cryptocurrency must be registered with the SEC. Ultimately, this Note argues that the regulation of cryptocurrency—as a developing technology—is a “major question,” and thus Congress should authorize a new commission or sub-agency that can adequately address this varied and everchanging field