Deficiencies in the Judicial Classification of Cryptocurrencies Indicating the Need for Legislative Alternatives

The cryptocurrency industry is desperate for regulatory clarification, which would stabilize and secure cryptocurrency and, ultimately, promote increased investment. How the United States ultimately chooses to pursue cryptocurrency regulation has massive implications for future investment and the development of this technology. Disagreement over how to classify cryptocurrency under the investment contract test created in SEC v. Howey, including the recent Second Circuit split, has led to calls for resolving legislation. Cryptocurrency legislation has recently been passed by the European Union, and there are currently proposals for legislation before Congress in the United States. This Note considers the context surrounding demands for regulatory clarification of cryptocurrency. It examines the Howey test, how it would apply to cryptocurrency, and the Second Circuit split regarding Howey's application to crypto offerings. There are significant shortcomings in applying the Howey test to cryptocurrency. Ultimately, then, it is necessary to adopt clarifying legislation, such as regulations recently passed in Europe—the Markets in Crypto Assets Regulation—and—and legislation currently before Congress—the Financial Innovation and Technology for the 21st Century Act.