by Seung Hyun Shin*

The current legal framework governing digital assets, or cryptocurrency, is fractured and uncertain, infringing on due process rights by depriving industry participants of fair notice of when and whether federal securities law applies. Regulatory treatment can vary significantly depending on the features of the digital asset, the agency asserting jurisdiction, the judge presiding over the action, and the prevailing state of the crypto market. These inconsistencies, coupled with the Securities and Exchange Commission’s reliance on enforcement rather than rulemaking, have left cryptocurrency industry participants without clear guidance. Because the Securities Act of 1933 lacks explicit language addressing digital assets, Congress must intervene. By amending the Securities Act to clarify the classification and regulatory treatment of cryptocurrencies, Congress can restore due process rights and provide the interpretive clarity that courts and regulators alike have struggled to produce.

Since its inception, digital assets like cryptocurrencies, or crypto, have challenged the scope of federal regulatory authority. Crypto is a “decentralized and fully digital form of currency” that “can be traded, transferred, invested, and used to pay for goods and services.”1 Each crypto transaction is recorded on a “public, permanent, [and] permissionless” blockchain that is “maintained through a decentralized network of independent computers or online users.”2 Blockchains function “like a bank’s ledger in that they record all transfers of data,” specifically, in the crypto context, all digital asset transactions.3 While this data is visible to anyone, the identities of users are anonymized through pseudonyms.4 These unique features of crypto have made it challenging for federal agencies to fit it within the existing financial regulatory frameworks that apply to traditional licensed brokers.5 Despite efforts to do so, the regulatory treatment of crypto remains inconsistent and unpredictable, to the significant detriment of market participants.

The uncertainty in crypto regulation leaves industry participants without guidance regarding how their products will be classified or regulated.6 Courts and agencies have gone as far as to stretch decades-old statutes like the Securities Act of 1933 (“Securities Act”) and the Commodity Exchange Act to apply to crypto, despite it being a financial instrument never contemplated by Congress. The result is a patchwork of rulings and enforcement actions that vary depending on the specific features of the digital asset, the agency asserting jurisdiction, the judge presiding over the action, and the prevailing state of the crypto market. Such unpredictability leaves individuals and companies unable to identify in advance what conduct is lawful, exposing them to severe penalties without fair notice. To restore due process rights, Congress must establish a clear, uniform statutory framework that brings legitimacy to crypto regulation.

One of the earliest attempts to regulate crypto came in 2013, when the Securities and Exchange Commission (“SEC”) brought a crypto-related enforcement action in federal court.7 The agency charged a Texas citizen and his company with defrauding investors through a Ponzi scheme involving the cryptocurrency Bitcoin.8 As a threshold matter, the court had to determine whether it had subject matter jurisdiction over the action, a question turning on whether Bitcoin investments could be classified as a “security” pursuant to the Securities Act.9

Per the Securities Act, a “security” is “‘any note, stock, treasury stock, security future, security-based swap, bond . . . [or] investment contract.’”10 During this action, the SEC advanced the theory that Bitcoin investments constitute investment contracts and thus can be considered securities.11 Whether an asset is an investment contract is determined by a four-factor analysis known as the Howey test, which considers whether the contract, transaction, or scheme involves (1) an investment of money, (2) a common enterprise, (3) the expectation of profits, and (4) profits derived from the efforts of the promoter or a third party.12 In determining that the court had jurisdiction to hear the Bitcoin dispute, the Eastern District of Texas held that all four factors of the Howey test weighed in favor of finding that Bitcoin investments met the definition of an investment contract, and were therefore “securities” within the meaning of the Securities Act.13 But while the court found that Bitcoin investments qualified as a security in this specific context, the ruling left the broader question of how to classify digital assets generally unresolved.

The lack of uniform regulatory treatment of cryptocurrencies stems in part from the fact that not all crypto is created equal. For instance, stablecoins are cryptocurrencies designed to maintain a stable value by tethering their price to a reference asset, typically government-issued currencies like the U.S. dollar.14 Unlike Bitcoin, the prices of which may fluctuate wildly, stablecoins aim to minimize volatility.15 Notably, this feature allows stablecoins to evade securities regulation because, as mere “stores of value or mirrored shares,” they create no reasonable expectation of profit from a common enterprise, failing to meet the second factor of the Howey test to constitute a security.16 Instead, a stablecoin holder simply owns an asset designed “to maintain a one-to-one peg with another asset,” without relying on others to generate returns.17 On the other hand, some cryptocurrencies are designed to grant holders voting power to make decisions about how the crypto project is run.18 This gives holders “meaningful control over the enterprise,” which in turn fails to satisfy the fourth prong of the Howey test, requiring that profits be derived from the efforts of others, as the holders themselves are the ones in control.19 These distinctions among cryptocurrencies illustrate the inherent limitations of the Howey framework, such that the ruling by the Eastern District of Texas in its consideration of Bitcoin investments as a security cannot be said to settle regulatory discrepancies across the entire industry. Instead, the wide variation in how different cryptocurrencies function only deepens the legal ambiguity and underscores the need for Congress to create a clear, consistent framework that offers fair notice to industry participants in order to restore due process in crypto regulation nationwide.20

Cryptocurrencies also receive disparate regulatory treatment depending on the structure of the transaction or the judge presiding over the action. For instance, in 2020, the SEC brought a civil enforcement action against Ripple Labs for “the unlawful offer and sale” of the cryptocurrency XRP in violation of the Securities Act.21 Ripple resold XRP on secondary market digital asset exchanges, where sellers did not know who they were selling to, and buyers did not know who they were buying from.22 In 2023, Judge Analisa Torres of the Southern District of New York held that this scheme did not satisfy the Howey test because secondary market purchasers could not reasonably expect to profit from a common enterprise if they did not know who they were buying from, failing the test’s second factor.23 However, in a similar case, in the same district court and in the same year, Judge Jed Rakoff rejected the premise that “coins sold directly to institutional investors are considered securities and those sold through secondary market transactions to retail investors are not.”24 In Judge Rakoff’s opinion, the manner in which cryptocurrencies are sold, either directly or through secondary markets, does not change the Howey analysis because Howey makes no distinction between purchasers.25 The inconsistency in these decisions underscores the unpredictability that crypto companies and industry participants face, making it difficult to discern how even courts in the same district will apply their own precedent. This unpredictability is not only frustratingly convoluted, but it also deprives crypto companies and market participants of the fair notice that due process demands, leaving them vulnerable to adverse enforcement actions based on conflicting interpretations of the law.

Evidently, the Howey test cannot be applied uniformly across all cryptocurrencies, crypto transactions, or by judges sitting in the same district. But even if a cryptocurrency could be classified as a “security,” the SEC’s disclosure rules for traditional securities are ill-suited for crypto’s blockchain technology. Issuers of registered securities are required to regularly disclose information to the SEC, such as annual and quarterly reports.26 However, for many crypto assets, this information is either “nonexistent or meaningless” to cryptocurrency holders, who are more interested in “how they can use a token or how the relevant blockchain’s code might be changed.”27 Additionally, for decentralized crypto assets like Bitcoin, it is unclear whether there even is a single party with access to all the information required by the SEC’s disclosure rules.28 Therefore, even if a particular cryptocurrency were to be classified as a security by the SEC, the agency would be unable to uniformly apply its own rules that apply to all other registered securities. This regulatory mismatch would not only create further confusion for industry participants seeking to comply with the law, but would also undermine the legitimacy of any enforcement actions brought by the SEC under rules that were never designed to apply to crypto to begin with.

Where securities regulation fails to provide clarity, one might turn to commodities regulation to fill the gap, but that framework proves no more satisfying in this context. To classify a cryptocurrency as a “commodity” under the regulatory authority of the Commodity Futures Trading Commission (“CFTC”), it must constitute “goods and articles . . . in which contracts for future delivery are presently or in the future dealt in.”29 This definition encompasses a broad category of assets, including energy products, agricultural products, and precious metals.30 Courts have agreed with the CFTC that certain digital assets, including Bitcoin, Ether, and Litecoin, can be classified as “commodities” pursuant to the Commodity Exchange Act.31 However, unlike the SEC, the CFTC’s regulatory authority is limited to derivatives, where people trade contracts that bet on the future price of an asset, and does not extend to spot transactions where people buy and sell crypto directly.32 In fact, “[n]o federal agency currently has general authority over spot transactions in digital assets . . . that are not securities.”33 As a result, treating crypto as a commodity does little to resolve the asset’s regulatory uncertainty, since the CFTC’s limited jurisdiction over derivatives leaves spot transactions—which make up the bulk of crypto activity—beyond the realm of comprehensive oversight.

In response to disjointed crypto regulation, industry participants have petitioned the SEC and courts to provide fair notice of their views on digital assets in the interest of due process. For instance, in Coinbase v. SEC, Coinbase, an online crypto trading platform, petitioned the SEC to use its rulemaking authority to clarify how federal securities laws apply to cryptocurrencies.34 The Third Circuit held that the SEC was “not presumptively required to engage in notice-and-comment rulemaking for digital assets.”35 But regardless of whether formal rulemaking is legally required, regulated parties are entitled to clear and consistent guidance before being subjected to enforcement, and crypto industry participants are no exception.36 Without such clarity, enforcement becomes punishment without warning, constituting a violation of the due process rights that exist to protect all regulated entities.37

Upon reviewing Coinbase’s due process challenge, the Third Circuit reasoned that “although the SEC’s application of the Howey test to a particular digital asset may sufficiently depart from its past conduct to raise fair notice concerns, its general position that some digital assets may qualify as securities does not.”38 Similarly, in SEC v. Terraform Labs Pte. Ltd, the Southern District of New York ruled that the SEC did not violate a cryptocurrency company’s due process rights by bringing an enforcement action against them because “a reasonable person operating within the [crypto] industry [would have] fair notice that their conduct may prompt an enforcement action by the SEC.”39 However, these opinions neglect the economic reality that the current regulatory state altogether deprives crypto companies of fair notice by treating coins differently in different contexts.40

Judge Bibas, concurring in Coinbase, points out that “[t]he SEC repeatedly sues crypto companies for not complying with the law, yet it will not tell them how to comply. That caginess creates a serious constitutional problem; due process guarantees fair notice.”41 The need for fair notice is heightened by the novelty of this field and the nature of the SEC’s regulatory penalties.42 Although the penalties that the SEC seeks are technically civil, they are “functionally criminal” because they “go beyond compensating victims to deter and punish.”43 Exposing crypto industry participants to severe penalties without fair notice of what the rules are or if they apply to them violates the core principle of enforcement that “one cannot deter or fairly blame the defendant who does not know what the law forbids.”44

Some of these due process concerns could be alleviated by agency rulemaking, but the SEC has refused to step in.45 It may be that the SEC’s reluctance to engage in digital asset rulemaking stems from a fear that the agency lacks the statutory authority to do so. Undergirding this concern lies the Major Questions Doctrine,  the principle of statutory construction that requires “Congress to speak clearly if it wishes to assign an agency decisions of vast ‘economic and political significance.’”46 This doctrine has been previously applied to shortstop agency authority in cases where the Environmental Protection Agency attempted to substantially restructure the American energy market and where the Department of Education attempted to institute a mass student loan cancellation program.47 In both of these cases, the Supreme Court held that there was no clear congressional grant of authority for these agencies to make decisions of such vast economic and political significance.48 Similarly, there is no clear congressional grant of authority empowering the SEC to comprehensively regulate the crypto industry because the Securities Act makes no mention of digital assets, let alone authorizes regulatory action over said assets.

Despite these concerns, the Southern District of New York is unconvinced that the Major Questions Doctrine would preclude the SEC from bringing individual enforcement actions within the crypto industry.49 In SEC v. Terraform Labs Pte. Ltd., the court emphasized that this doctrine should apply only in “extraordinary circumstances” and that it would “ignore reality to place the cryptocurrency industry and the American energy [industry] . . . on the same plane of importance.”50 Thus, the court ruled that the SEC’s “determination that certain [crypto assets] are securities hardly amounts to a ‘transformative expansion in its regulatory authority’” to invoke the Major Questions Doctrine and preclude agency action.51 However, these arguments fail to address broader regulatory implications that would meet the threshold of an “extraordinary circumstance.” While the court downplayed the applicability of the Major Questions Doctrine in the context of individual enforcement actions, one could imagine a far more expansive and unprecedented regulatory move. For instance, “[i]f the SEC were to promulgate a rule banning crypto assets, it would surely face legal challenges. One might wonder if [the] agency . . . is authorized to ban an emerging technology.”52 Such a ban would demonstrate that the SEC is seeking to regulate a “significant portion of the American economy,” without clear congressional authorization to do so, given that Congress surely never contemplated the modern-day prominence of cryptocurrencies when enacting the Securities Act in 1933.53

Nonetheless, the current state of crypto regulation by the SEC avoids the Major Questions Doctrine altogether by engaging in individual ex-post enforcement rather than sweeping ex-ante rulemaking. However, by not articulating a consistent regulatory framework for crypto, the SEC is “pursuing a de facto ban through enforcement.”54 “By combining regulatory uncertainty with unpredictable enforcement against the infrastructure for trading crypto, [the SEC] can get near-total deterrence” of market participation.55 In essence, the SEC is regulating crypto through lawsuits instead of laws. This course of action underscores how the current statutory and regulatory landscape is ill-suited to regulate cryptocurrencies and deprives industry participants of the fair notice that due process requires.

***

A clear congressional grant of authority is necessary for the SEC to proceed comfortably with crypto regulation and to fulfill its mandate of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.56 In fact, the agency is aware that its powers are limited with regard to crypto regulation and has asked Congress to act. In 2021, the Chair of the SEC testified before Congress that “the exchanges trading in these crypto assets do not have a regulatory framework either at the SEC, or our sister agency, the [CFTC], that could instill greater confidence,” and that “only Congress . . . could really address . . . bring[ing] greater investor protection to the crypto exchanges.”57

Thus, Congress should amend the Securities Act or the Commodity Exchange Act to clearly define the classification and treatment of crypto to restore crucial due process rights to industry participants. Such an amendment would not only clarify the scope of the SEC’s and the CFTC’s jurisdiction but also provide a stable legal foundation for innovation, enforcement, and investor protection in the evolving digital asset economy. Alternatively, if Congress does not wish to grant the SEC or the CFTC the power to regulate crypto, it should amend the relevant statutes to explicitly deny these agencies the authority to do so. In either case, Congress must not stay silent on the issue and allow enforcement to proceed as is, because doing so would perpetuate a constitutionally suspect regime in which agencies punish conduct without clear legal standards or the congressional grant of authority to regulate.

In the absence of clear federal legislation, the SEC continues to leave crypto industry participants uncertain about how to comply with the law. With over $2 trillion in cryptocurrency market capitalization and millions of users worldwide, including many young entrepreneurs, retail investors, and everyday consumers experimenting with these new financial tools, the absence of clear regulatory rules creates not only legal confusion but also puts everyday users at risk of unexpected penalties and stifles the innovative potential of crypto.58 Thus, Congress must step in to provide the federal legislative clarity the crypto industry needs to move forward under a coherent regulatory framework that protects investors, innovation, and the rule of law.

* Seung Hyun Shin is a J.D. Candidate (2026) at New York University School of Law. This Contribution is a commentary on the state of crypto regulation and the case for legislative action. This contribution distills one side of the argument, and the views expressed herein do not necessarily represent the author’s views.

1. Van Loon v. U.S. Dep’t of the Treasury, 122 F.4th 549, 554 (5th Cir. 2024).

2. Id. (quoting David Rodeck, Understanding Blockchain Technology, Forbes (May 23, 2023), https://www.forbes.com/advisor/investing/cryptocurrency/ what-is-blockchain/ [https://perma.cc/V6TE-L6EV] (citation modified).

3. Id. (“In essence, each transaction is . . . stored on a ‘block’ added to the ‘chain’ of all prior transactions—and is publicly viewable forever.”).

4. Id.

5. For instance, decentralization means that there is no central issuing authority capable of complying with the SEC’s disclosure regime, which assumes that there is a central entity capable of producing and submitting information to regulators. See 15 U.S.C. § 78m(a) (requiring every issuer of a security to file specific documents and annual and quarterly reports with the SEC).

6. See, e.g., Coinbase, Inc. v. SEC, 126 F.4th 175, 191 (3d Cir. 2025) (“Coinbase insists that fair-notice problems are ‘heightened’ here because the SEC ‘itself has experienced considerable difficulty interpreting a statute that it administers and its actions have produced considerable uncertainty.’ . . . Coinbase repeatedly insists that the SEC has changed its position on whether the securities laws apply to digital assets.”) (citation modified).

7. See Complaint, SEC v. Shavers, 2013 WL 3810441 (E.D. Tex. July 23, 2013) (No. 4:13-CV-416).

8. Id.

9. See SEC v. Shavers, No. 4:13-CV-416, 2013 WL 4028182, at *1–2 (E.D. Tex. Aug. 6, 2013).

10. Id. at *2 (quoting 15 U.S.C. § 77b).

11. See id. at *2.

12. See SEC v. W.J. Howey & Co., 328 U.S. 293, 298–99 (1946).

13. See Shavers, 2013 WL 4028182, at *2.

14. See SEC v. Terraform Labs Pte. Ltd., 684 F. Supp. 3d 170, 182 (S.D.N.Y. 2023).

15. See id.

16. See id. at 194 (“So, in theory, [stablecoins], if taken by themselves, might not qualify as investment contracts.”).

17. Id.

18. See Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, Exchange Act Release No. 81207, 117 S.E.C. Docket 745, at *5–6 (July 25, 2017).

19. See id. at *15.

20. Meanwhile, state financial regulators have begun stepping into the regulatory vacuum, asserting their own authority over digital assets. See, e.g., Virtual Currency Business Licensing, N.Y. Dep’t of Fin. Servs., http://dfs.ny.gov/ virtual_currency_businesses (last visited July 11, 2025) (The New York Department of Financial Services created a comprehensive regulatory framework for virtual currencies through its BitLicense regime. This requires businesses engaged in virtual currency activities in New York to obtain a license and comply with requirements related to consumer protection, anti-money laundering, and cybersecurity.); see also Crypto, Cal. Dep’t of Fin. Prot. & Innovation, https://dfpi.ca.gov/consumers/crypto/ (last visited July 11, 2025) (“We regulate financial services and products in California, and since the Governor’s Executive Order on blockchain technology in 2022, our role in overseeing crypto has grown.”). These localized state actions create a disjointed framework for an industry that operates on a national and global scale, undermining the uniformity and predictability that effective regulation demands.

21. SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 316 (S.D.N.Y. 2023).

22. Id. at 317–18.

23. See id. at 328–29 (“Ripple did not know who was buying the XRP, and the purchasers did not know who was selling it.”).

24. Terraform Labs Pte. Ltd., 684 F. Supp. 3d at 197 (“[T]he Court rejects the approach recently adopted by another judge of this District in a similar case, SEC v. Ripple Labs, Inc.”).

25. See id. (“[T]he Court declines to draw a distinction between these coins based on their manner of sale, such that coins sold directly to institutional investors are considered securities and those sold through secondary market transactions to retail investors are not. . . . That a purchaser bought the coins directly from the defendants or, instead, in a secondary re-sale transaction has no impact on whether a reasonable individual would objectively view the defendants’ actions and statements as evincing a promise of profits based on their efforts.”).

26. See 15 U.S.C. § 78m(a).

27. See Coinbase, Inc., 126 F.4th at 209 (Bibas, J., concurring).

28. Id.

29. See 7 U.S.C. § 1a(9).

30. See CFTC v. Parnon Energy Inc., 875 F. Supp. 2d 233, 236 (S.D.N.Y. 2012) (energy products); CFTC v. Kraft Foods Grp., Inc., 153 F. Supp. 3d 996, 1001 (N.D. Ill. 2015) (agricultural products); CFTC v. Int’l Monetary Metals, Inc., No. 14-62244-CIV, 2016 WL 8256852, at *1 (S.D. Fla. Aug. 1, 2016) (precious metals).

31. See CFTC v. Laino Grp. Ltd., No. 4:20-CV-03317, 2021 WL 4059385, at *6 (S.D. Tex. June 30, 2021) (“[B]itcoin, [E]ther, and [L]itecoin are ‘commodities’ pursuant to 7 U.S.C. § 1a(9).”); CFTC v. McDonnell, 287 F. Supp. 3d 213, 228 (E.D.N.Y. 2018) (“Virtual currencies can be regulated by CFTC as a commodity. . . . They fall well-within the common definition of ‘commodity.’”); CFTC v. My Big Coin Pay, Inc., 334 F. Supp. 3d 492, 498 (D. Mass. 2018) (“[T]he . . . complaint alleges that My Big Coin is a virtual currency and it is undisputed that there is futures trading in virtual currencies (specifically involving Bitcoin). That is sufficient, especially at the pleading stage, for plaintiff to allege that My Big Coin is a ‘commodity’ under the [Commodity Exchange Act].”).

32. Spot transactions occur when assets “are bought and sold for immediate settlement, meaning the transactions are settled ‘on the spot.’” See Eva Su, Cong. Rsch. Serv., IN12584, Crypto Legislation: CLARITY Act’s (H.R. 3633) Potential Effects on SEC Jurisdiction (July 10, 2025), https://www.congress.gov/crs-product/IN12584.

33. Id.

34. See Coinbase, Inc., 126 F.4th at 190–91.

35. Id. at 203–04.

36. See FCC v. Fox Television Stations Inc., 567 U.S. 239, 253–54 (2012) (holding that the Due Process Clause requires regulating agencies to provide guidance or regulation that would give “a person of ordinary intelligence fair notice” that the regulated conduct was prohibited).

37. The United States “equally with the states . . . are prohibited from depriving persons or corporations of property without due process of law.” Union Pac. R. Co. v. U.S., 99 U.S. 700, 718–719 (1878) (emphasis added).

38. Coinbase, Inc., 126 F.4th at 192.

39. Terraform Labs Pte. Ltd., 684 F. Supp. 3d at 192.

40. See Coinbase, Inc., 126 F.4th at 213 (Bibas, J., concurring).

41. Id.; see also id. at 214 (“Existing rules do not fit blockchain technology, but the SEC refuses to recognize this. Its official silence and contradictory unofficial signals breed uncertainty. Crypto issuers and exchanges are left to cross their fingers and pray that the agency does not fault them.”).

42. Id. at 213–14.

43. Id. at 214.

44. Id.

45. As of writing this Contribution, the SEC has announced its intention to lay out rules for crypto. It is unclear at this time what these rules would look like, but the Trump administration has encouraged the SEC and CFTC to use their existing statutory authority to regulate crypto. See Hannah Lang & Douglas Gillison, US Securities Regulator Lays Out Sweeping Plans To Accommodate Crypto, Reuters (July 31, 2025), https://www.reuters.com/sustainability/boards-policy-regulation/us-securities-regulator-lays-out-sweeping-plans-accommodate-crypto-2025-07-31/.

46. Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 324 (2014) (citation modified).

47. See West Virginia v. EPA, 597 U.S. 697, 724 (2022); Biden v. Nebraska, 600 U.S. 477, 506 (2023).

48. Id.

49. See Terraform Labs Pte. Ltd., 684 F. Supp. 3d at 189–90.

50. Id. at 189.

51. Id. at 190 (quoting West Virginia, 597 U.S. at 724).

52. Coinbase, Inc., 126 F.4th at 214 (Bibas, J., concurring) (citing West Virginia, 597 U.S at 744 (Gorsuch, J., concurring)).

53. See West Virginia, 597 U.S at 744 (Gorsuch, J., concurring).

54. Coinbase, Inc., 126 F.4th at 214 (Bibas, J., concurring).

55. Id.

56. See Mission, U.S. Sec. & Exch. Comm’n (Aug. 9, 2023), https://www.sec.gov/about/mission.

57. Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide, Part III, Hearing Before the H. Comm. On Fin. Servs., 117th Cong. 1, 12 (2021) (statement of Hon. Gary Gensler, Chairman, U.S. Securities and Exchange Commission, https://perma.cc/DR9A-RHB2).

58. See Christina Pazzanese, Regulators Put Cryptocurrency in Crosshairs, Harv. Gazette (Sept. 29, 2021), https://news.harvard.edu/gazette/story/ 2021/09/regulating-the-unregulated-cryptocurrency-market/; see also Andrew Welsch, Younger Investors Like Options and Crypto. They Might Be Sorry, Barron’s (Feb. 7, 2025), https://www.barrons.com/articles/crypto-options-risk-young-investors-be89eb5f.