In addition to the jurisdiction granted by the US Congress, the SEC can define whether cryptocurrencies are “securities” through “Regulation by Enforcement”. Due to the importance of US court precedents as a basis for jurisdiction, the SEC will bring civil lawsuits or administrative penalties against founders, executives, etc., for violating the US securities laws. Based on court rulings to determine its jurisdiction over the cryptocurrency, for example, in December 2020, the SEC filed a civil lawsuit against Ripple, alleging that Ripple violated securities laws by not registering XRP with the SEC for issuance and sales. The SEC’s lawsuits not only focus on the classification of cryptocurrencies but also address business issues of some crypto companies. For instance, in June 2023, the SEC sued Coinbase, accusing it of illegally operating a cryptocurrency securities business without registration. The court largely supported the SEC’s allegations, illustrating how the SEC continuously expands its regulatory scope through administrative means. Due to the ambiguous regulatory framework of the crypto industry, such lawsuits by the SEC can easily lead to “intimidation” enforcement, making it difficult for industry professionals to protect themselves based on reliable laws, thus significantly impacting the development and innovation of crypto companies.
