Tulip or Gold? How the Securities and Exchange Commission Should Regulate Cryptocurrencies

Abstract

This Article, in Part I, provides a background of cryptocurrencies, including Bitcoin, altcoins, and ICOs. It then briefly discusses the excitement around blockchain technology. Part II discusses one mechanism by which the SEC exercises its jurisdiction, the registration requirements, and the exemptions that companies can use to bypass registration. Part III elaborates on the publicly available information regarding whether the SEC has jurisdiction over an ICO or cryptocurrency. This includes the Howey framework, Director Hinman’s speech, the DAO Report, the Munchee order, no-action letters, and the SEC v. Kik summary judgment ruling. In Part IV, this Article synthesizes these materials into a cryptocurrency-specific legal standard to determine whether a cryptocurrency is subject to the SEC’s jurisdiction.38 The benefits of moving away from the Howey framework include that the Howey test will be kept for its intended use as a catchall category and that issuers can more reliably predict whether their cryptocurrency is subject to the SEC’s jurisdiction. Subsequently, in Part V, this Paper addresses two additional considerations: why courts need to view any bright-line rules drawn within the context of this balancing test in light of the purposes of the securities laws, and why Congress may be reluctant to give the market clearer guidance. Finally, in Part VI, it concludes by emphasizing that principled guidance in this area would best achieve the balance of protecting laypeople while allowing companies to innovate.