Reported by Keith Blackman

In the span of 24 hours, the Securities and Exchange Commission opened fire against two cryptocurrency giants. On June 5, it fileda wide-ranging, 13-count complaint against Binance—the world’s largest cryptocurrency exchange—along with its founder Changpeng Zhao. 

The SEC alleged that Binance failed to register as a securities exchange, conducted unregistered securities offerings, and committed securities fraud. Just one day later, the SEC brought a similar enforcement action against Coinbase, the largest US-based crypto exchange, for failing to register its exchange and offerings.

These two securities actions are unusual because there are currently no laws or SEC rules classifying cryptocurrency as a security. In April, Coinbase filed an extraordinary writ of mandamus with the Third Circuit Court of Appeals, seeking to force the SEC to respond to Coinbase’s petition demanding the proposal of new rules identifying which digital assets (including cryptocurrency) should be defined as securities, thus bringing them within the SEC’s purview.

Coinbase’s experience isn’t unusual. Despite an almost complete lack of any regulatory framework governing digital assets, the SEC—along with its counterparts at other federal agencies—have sought to quilt a patchwork, case-by-case crypto policy via a cascade of prosecutions and civil enforcement actions against crypto traders, broker-dealers and exchanges.

Responding to Coinbase’s mandamus petition, the SEC argues in its defense that “judicial determinations made on a case-by-case basis” may precede—and even “inform”—future rulemaking, while litigants like Coinbase “are fully capable of testing their views of the securities laws” in court.

Given the government’s piecemeal regulation by enforcement approach to cryptocurrency regulation, the only way for crypto companies to understand which actions might draw the ire of law enforcement is to closely examine the facts of individual actions.

Read full report: https://news.bloomberglaw.com/business-and-practice/there-ought-to-be-a-law-before-enforcing-unwritten-crypto-rules