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The Role of the SEC In Cryptocurrency Regulation and Enforcement

By Jay Dubow, Joanna Cline and Milica Krnjaja
March 01, 2024

The U.S. Securities and Exchange Commission's (SEC) cryptocurrency-related actions reached a new high in 2023, jumping more than 50% when compared to 2022. Although the SEC continues to view cryptocurrency enforcement as a top priority, the question of what role the SEC should play in regulating cryptocurrencies has been an ongoing debate. Nevertheless, we expect the SEC's enforcement efforts in this area to continue at a high pace in 2024, even though whether or not cryptocurrency should be classified as a security or something else remains uncertain.

The Uncertain State of the Law

SEC Chair Gary Gensler has made clear that he believes the existing securities regime appropriately governs cryptocurrencies. In his view, most cryptocurrencies are securities based on the Howey test. Under the Howey test, a transaction is considered a security if it meets four criteria:

  • Money is invested.
  • There is an expectation that the investor will earn a profit.
  • The investment is a common enterprise.
  • Profits are generated through the efforts of others.

Yet recent cases have shown that determining whether a cryptocurrency is a security is a complex task that may not always have a clear answer. This uncertainty has increasingly prompted some judges to question why there is no specific regulation addressing cryptocurrency. For instance, U.S. District Judge Amy Berman Jackson of the District of Columbia, who is presiding over the SEC's case against Binance, made her views known on this issue during a hearing when she asked:

"Where's the SEC been? Does that matter … why is it that if they're trying to achieve legislation, is that some suggestion there's something missing in the statute to cover this? Why are we doing this on a coin-by-coin, case-by-case, judge-by-judge litigation which depends on the … vagaries of the individual districts … as opposed to issuing a reg that tells everybody 'this is it?'"

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