The Commodification of Cryptocurrency
Cryptocurrencies are digital tokens built on blockchain technology. This allows for a product that is fully decentralized, with no need for a third-party intermediary like a government or financial institution. Cryptocurrency creators use initial coin offerings (ICOs) to raise capital to build their tokens. Cryptocurrency ICOs are problematic because they do not fit neatly within either of two traditional categories—securities or commodities. Each of these categories has their own regulatory agency: the SEC for securities and the CFTC for commodities. At first blush, ICOs seem to be a sale of securities subject to regulation by the SEC, but this is far from clear and creates regulatory difficulties. This is because the Howey test, which determines whether an asset is a security or not, does not cleanly apply to nontraditional assets, like tokens. This Note argues for a revised standard that reconciles Howey with cryptocurrencies. This standard would require cryptocurrency creators to show how essential blockchain technology is to their token if they want to fall beyond the scope of the Howey test, and consequently SEC regulation. This standard would still preserve regulatory protections from fraud, which the CFTC provides for investors, while loosening regulatory restrictions on the cryptocurrencies that leverage blockchain technology most usefully.
*J.D. Candidate, May 2019, University of Michigan Law School. I am grateful to Professor Adam Pritchard for his insights. Thanks also to Michael Abrams and the Volume 117 Notes Editors for their support and contributions.