With the revolutionary technology known as blockchain quickly spreading across the globe, regulators are struggling to find an ideal balance between regulation and innovation. The critical question is whether cryptocurrencies and initial coin offerings (“ICOs”) are unique enough to warrant the creation of a new categories or if they should be considered securities and therefore subject to existing securities laws and requirements. Because new cryptocurrencies do not require government backing, many leaders in the cryptocurrency arena fear additional regulatory delay, or excessive regulations, will lead many cryptocurrency founders to take their innovation and multibillion dollar businesses overseas to countries with more established and favorable regulations (Kate Rooney, CNBC).

Stemming from a 1946 Supreme Court decision, the “Howey Test” has been the primary method for determining whether something is a security and subject to federal securities laws. The Howey Test defines a security as a transaction in which money is invested in a common enterprise with an expectation of profits, which must derive from the efforts of a third party and result from factors largely outside the control of the investor (Micha Benoliel, StartupGrind). This test has evolved over the years as different courts have interpreted the elements. But many crypto leaders, and even a few Congressmen, are questioning if applying this seventy-two year-old test to the new asset class is the right approach (Kate Rooney, CNBC).

At a recent roundtable discussion on Capitol Hill, Congressman Darren Soto stated, “I’m sensing we may need an entirely new category that treats this like a new asset, so that we’re not trying to squeeze a square peg into a round hold.” (Id.) On the other hand, SEC Chairman Jay Clayton had the opposite opinion: “I believe every ICO I’ve seen is a security” (Michael Casey, Coindesk). Whether Congress chooses to adapt current regulations or develop a new category to address this new asset class, many founders simply desire to remove the uncertainty along with the fear and hesitation it breeds.

With such lingering uncertainty, some companies are scrambling to determine if their ICOs are compliant, while others feel their ICOs should be classified as commodities and are proceeding accordingly. Except for Bitcoin and Ethereum, however, the SEC continues to treat all ICOs as securities and hasn’t hesitated to prosecute those they feel are out of compliance. In turn, crypto leaders have warned Congress of the stifling effect this fear of misinterpreting the law can have on innovation and reiterated the need for clear, competitive regulations if the U.S. hopes to keep founders from taking their crypto and blockchain businesses overseas (Kate Rooney, CNBC).

Motivated by blockchain technology’s increasing potential for substantial economic gains, many countries are demonstrating a willingness to minimize regulations in an effort to attract founders to their shores (Michael Casey, Coindesk). For example, several East Asian nations have implemented a “business first, regulation later” approach, with Japan being among the first to officially recognize Bitcoin as a currency. At the same time, other countries, such as China, have banned ICOs altogether—at least for the foreseeable future (Zhuling Chen, Fortune). With such divergent regulatory stances, it remains unclear if any type of global regulation will ever become a reality. Despite this, if the U.S. wishes to be a key player and retain a sizable piece of the cyrpto and blockchain pies, additional clarity and guidance surrounding regulation can wait no longer.