Part 1 of our series on the history of cryptocurrency regulation in America looked at the burgeoning years of cryptocurrency – mainly Bitcoin – and the attempt to regulate it through criminal enforcement actions. Part 2 covers the birth of the Ethereum network, the 2017 Bull Run, and the long crypto winter that followed it.

These periods in the history of cryptocurrency regulation reveal an increasing interest by regulators to define the exact nature of this new technology. As we will see, the CFTC initially claimed jurisdiction, but later the SEC also claimed jurisdiction over various elements of crypto. This regulatory overlap will continue through the 2017 bull run and into the crypto winter that follows.

Enter the Ethereum network

Regulators began to take notice of the cryptocurrency space with the introduction of the Ethereum network in 2014. In just a few years’ time, the Ethereum network grew from a whitepaper concept to the world’s second largest cryptocurrency. The Ethereum foundation also formed an alliance with some of the world’s largest corporations and educational institutions. This attracted the attention of regulators.

January 6, 2014: The Ethereum whitepaper is published on Ethereum.org. The Ethereum network is then announced at the North American Bitcoin Conference shortly thereafter in Miami, Florida.

February 2014: The Japanese bitcoin exchange Mt. Gox shuts down its website and files for bankruptcy. Mt. Gox is responsible for 70% of all bitcoin trades. Mt. Gox claims it has $65 million in liabilities. It’s later revealed that Mt. Gox was hacked. In the year 2023, the bankruptcy case is still ongoing, and users still do not have access to their coins. The deadline to register a claim has now been moved to March 2023.

July 2014: The Ethereum Foundation is created as a Swiss non-profit foundation. An online public crowd sale of Ether occurs from July to August 2014. Participants are promised Ether in exchange for their Bitcoin.

December 2014: CFTC Chairman Massad testifies to the United States Senate that the CFTC has jurisdiction over derivative contracts based on virtual currencies.

January 2015: Bitcoin’s price touches $315.21.

July 30, 2015: The Ethereum network goes live and the first “genesis block” is created.

September 17, 2015: The CFTC, in an enforcement action against CoinFlip, Inc., finds that Bitcoin and other virtual currencies are properly defined as commodities. This is the first time any form of coin, digital asset, or cryptocurrency is listed on the CFTC’s own history timeline, despite CFTC Chairman Massad’s testimony in December 2014.

June 2, 2016: The CFTC cements this position in an enforcement action when it states, “bitcoin and other virtual currencies are encompassed in the definition [of commodity] and properly defined as commodities, and are subject as a commodity to the applicable provisions of the [Commodity Exchange] Act and [CFTC] Regulations.” See In re BFXNA INC. d/b/a BITFINEX, CFTC Docket No. 16-19 (June 2, 2016).

By late 2016, Bitcoin prices climb above $900. Ether is around $8.

January 20, 2017: CFTC Chairman Massad and SEC Chairman White resign as President Obama’s administration comes to an end. The election of President Donald Trump is predicted by many to be an era of deregulation.

The Ethereum network’s creation is marked by the CFTC claiming jurisdiction over virtual currencies and declaring them commodities. This is interesting because it is undisputed that Ether had a fundraising round, which will later be identified as one of the hallmarks of an “investment contract.” The rapid adoption of cryptocurrency in the coming years will cause the SEC to take a hard look at “Initial Coin Offerings” (ICOs). The entrance of President Donald Trump’s administration will also signal an era of deregulation that helps fuel a 2017 Bull Run.

The 2017 Bull Run

The 2017 Bull Run begins when major companies and educational institutions begin getting involved in the Ethereum ecosystem. The wave of adoption that follows will cause Bitcoin and Ether to soar to never seen highs. The SEC will stake out some ground in the cryptocurrency space by issuing a report that certain cryptocurrency tokens are securities. This begins the battle over jurisdiction that will continue for many years.

March 2017: Various startups, research groups, and Fortune 500 companies announce the creation of the Enterprise Ethereum Alliance (EEA) with 30 founding members.

May 4, 2017: Jay Clayton is sworn in as Chairman of the SEC following the election of President Donald Trump, again signaling potential deregulation. In connection with SEC Chairman Clayton’s appointment, President Donald Trump states, “[w]e need to undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers.”

May 2017: Bitcoin’s price breaks $2,000 and begins climbing. Ether is $95. The EEA now has 116 enterprise members, including CME Group, Cornell University’s research group, Toyota Research Institute, Samsung SDS, Microsoft, Intel, J.P. Morgan, Deloitte, Accenture, BNY Mellon, and more.

June 16, 2017: Ether hits $368.

Mid-July 2017: Over 150 members are in the EEA, including MasterCard, Cisco Systems, Sberbank, and Scotiabank.

July 25, 2017: The SEC issues a “Report of Investigation” regarding an Initial Coin Offering. This report is known as the “DAO Report.” In the report, the SEC finds that “DAO Tokens” are securities under the facts and circumstances of the case. Investors obtained the DAO Tokens by trading Ether, with the intention for DAO Tokens to fund projects leading to anticipated earnings.

August 10, 2017: J. Christopher Giancarlo is sworn in as Chairman of the CFTC, after having originally been appointed a Commissioner by President Barack Obama on August 1, 2013.

September 18, 2017: Bitcoin hits $4,100. Ether is around $255.

October 17, 2017: The CFTC issues its “Primer on Virtual Currencies.” This document references and acknowledges the DAO Report and finds no inconsistency between the SEC and CFTC, stating:

There is no inconsistency between the SEC’s analysis and the CFTC’s determination that virtual currencies are commodities and that virtual tokens may be commodities or derivatives contracts depending on the particular facts and circumstances.

November 3, 2017: Bitcoin hits $7,000. Ether is $301.

November 9, 2017: SEC Chairman Clayton, in an interview with the Wall Street Journal, indicates that tokens are likely securities but excludes Ether, saying “When you depart from the bitcoin or the Ethereum, and you get into the tokens, the hallmarks become pretty clear.”

November 2017: A young Sam Bankman-Fried co-founds Alameda Research, a “quantitative trading firm,” after leaving his job at Jane Street Capital. He will later found the infamous cryptocurrency exchange FTX.

December 3, 2017: Bitcoin hits $11,000. Ether is $460.

December 15, 2017: Bitcoin skyrockets and tops out at $19,345.49. Ether is $703.

Note: The dates of “all-time highs” are always disputed because there’s always a question of which exchange had the highest price at what time. For the purposes of this article, the undersigned has largely relied on the google price charts. There may be slight discrepancies in the date and amount of the “top.”

January 11, 2018: A new SEC Commissioner, Hester Peirce, is appointed by President Donald Trump and sworn into office. SEC Commissioner Peirce has previously been critical of the regulatory expansion enacted following the 2008 financial crisis.

January 12, 2018: Ether tops out at $1,400. Bitcoin is now $13,500.

The 2017 Bull Run saw Bitcoin and Ether hit staggering new highs. It was also marked by the perception of a deregulatory environment due to the newly appointed administration of President Donald Trump. The SEC finally waded into the discussion and determined that most ICOs are securities, whereas the CFTC still claimed jurisdiction over Bitcoin and Ether. In the following years, known as crypto winter, the two regulatory bodies will continue to wrestle with exactly how to treat these new technologies.

A long crypto winter

After Bitcoin almost reaches $20,000 in December 2017, and Ether $1,400 in January 2018, the cryptocurrency market will decline in price over the following years. This era is known as crypto winter because many projects will die off, and cryptocurrency prices will continue to fall. The Bitcoin price will not retake $20,000 until December 2020, almost two years later. Meanwhile, the CFTC and SEC will begin to disagree over the regulatory status of Ether.

February 2018: The CFTC published its “Bitcoin Basics” pamphlet. This pamphlet informs readers Bitcoin is a commodity, and that the CFTC has jurisdiction over it and other “virtual currencies.”

May 14, 2018: CFTC Commissioner Quintenz publicly urges the SEC to clarify Ether’s status, noting, “You have to regulate what exists in the market, and if things change, you need to recognize that things have changed.” He added, “if someone has issued, through an [initial coin offering], a security, then that was an unregistered security sale and the SEC deserves to be able to have jurisdiction over that and if necessary, prosecute . . . the conversation has necessitated a decision.”

June 6, 2018: SEC Chairman Clayton states in a CNBC interview that cryptocurrencies like Bitcoin are “not securities.” Bitcoin is $7,600. Ether is $590.

June 14, 2018: The SEC Director of Corporate Finance, William Hinman, announces that the SEC will not be treating Bitcoin or Ether as securities. This speech is now infamous and continues to play a prominent role in cryptocurrency regulation. He states:

And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value. Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required. And of course there will continue to be systems that rely on central actors whose efforts are a key to the success of the enterprise. In those cases, application of the securities laws protects the investors who purchase the tokens or coins.

July 26, 2018: SEC Commissioner Peirce dissents in an SEC order disapproving of a proposed rule change that would have allowed the Winklevoss Bitcoin Trust to list and trade shares on the Bats BZE Exchange, Inc. This move earns her the lasting nickname “Crypto Mom” among the cryptocurrency community. She will be a prominent and recurring figure in the regulation of cryptocurrency.

September 10, 2018: The SEC halts trading in two stocks listed on the Norwegian Stockholm stock exchange, part of NASDAQ’s Nordic markets. The SEC claims that Bitcoin Tracker One and Ether Tracker One are falsely representing themselves as cryptocurrency exchange traded funds (ETFs), whereas they are actually “non-equity linked certificates.”

September 28, 2018: U.S. Representative Ted Budd pens a letter to SEC Chairman Clayton asking his opinion about what Hinman said in the June 14, 2018 speech. The letter asks, among other things:

Do you agree that a token originally sold in an investment contract can, nonetheless, be a non-security as Mr. Hinman stated? Can the resultant token be analyzed separately from the original purchase agreement, which may clearly be an investment contract? And, if so, could the resultant token, nonetheless be a non-security?

December 7, 2018: SEC Commissioner Peirce says “don’t hold your breath” for a Bitcoin ETF, noting “definitely possible could be 20 years from now or it could be tomorrow.”

Bitcoin closes out 2018 at $3,900 and Ether at $135.

March 7, 2019: SEC Chairman Clayton responds to the letter. In response to the specific question, SEC Chairman Clayton seemingly states he agrees with Hinman’s analysis that Ether is not a security. He does not say it directly, but he agrees that it’s possible for a digital asset to no longer be deemed a security. He states:

Your letter also asks whether I agree with certain statements concerning digital tokens in Director Hinman’s June 2018 speech. I agree that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument. A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition. I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.

March 30, 2019: SEC Commissioner Peirce criticizes the SEC, noting “the agency hasn’t been great on innovation,” and “[regulators are] dismissive of this space in a way that misses the point.”

April 3, 2019: The SEC releases its “Framework for ‘Investment Contract’ Analysis of Digital Assets.” This document discusses some of the factors that market participants should consider when offering a sale of cryptocurrency. Simultaneously, Hinman releases a statement about the Framework document, and notes that it is not actually binding:

This framework represents Staff views and is not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved its content. This framework, like other Staff guidance, is not binding on the Divisions or the Commission. It does not constitute legal advice, for which you should consult with your own attorney. It does not modify or replace any existing applicable laws, regulations, or rules.

Bitcoin is $5,200 and Ether is $165.

April 2019: Sam Bankman-Fried founds FTX. Alameda Research, which he co-founded in 2017, will play a significant role in the growth of FTX, acting as its main market maker.

May 9, 2019: SEC Commissioner Peirce again criticizes the way the SEC has handled cryptocurrency regulation, stating, “[t]he enforcement actions we have taken to date in the crypto space have—for the most part—exhibited appropriate restraint. On the regulatory side, hasty is not the word I would use to describe the SEC’s pace. It is not the SEC’s overzealous action that has stifled the crypto industry, but its unwillingness to take meaningful action at all.”

June 28, 2019: Bitcoin ramps up to $12,300, before dropping for the remainder of 2019. Ether is $317.

July 15, 2019: CFTC Chairman Giancarlo resigns. Heath Tarbert is appointed as the new CFTC Chairman. He states that the markets the CFTC regulates should “serve the needs of everyday Americans.”

July 27, 2019: FTX privately launches its FTT token with an initial supply of 350 million tokens.

August 6, 2019: SEC Commissioner Hester Peirce expresses support for a non-exclusive safe harbor for token offerings. “Crypto regulation affords international regulators the opportunity to learn from one another … The resulting regulatory competition will allow us to see what works well and what does not work at all . . . One of the peculiarities of the U.S. system is the sheer number of regulators. Not only do we have the state-federal allocation of responsibility that I just mentioned, but we have multiple federal financial regulators,” she noted.

October 10, 2019: In a CFTC press release, CFTC Chairman Tarbert is quoted:

We’ve been very clear on bitcoin: bitcoin is a commodity under the Commodity Exchange Act. We haven’t said anything about ether – until now. It is my view as Chairman of the CFTC that ether is a commodity, and therefore it will be regulated under the CEA [Commodities Exchange Act]. And my guess is that you will see, in the near future, ether-related futures contracts and other derivatives potentially traded … It’s my conclusion as Chairman of the CFTC that ether is a commodity and therefore would fall under our jurisdiction. (Emphasis original.)

Bitcoin is $8,500. Ether is $180.

November 12, 2019: CFTC Chairman Tarbert states that the CFTC and the SEC are both “thinking carefully” about the forthcoming Ethereum 2.0 upgrade which is designed to replace the coin’s current Proof-of-Work (PoW) model. The upgrade will change the way new ether is created but would also reduce its electrical footprint.

December 9, 2019: SEC Commissioner Peirce observes that regulation can stifle the creative juices in people.

January 14, 2020: CFTC Chairman Tarbert in an interview again reiterates “So right now, Bitcoin and Ether are the two that we think fall under our jurisdiction.”

February 6, 2020: SEC Commissioner Peirce formally proposes a safe harbor period for cryptocurrency token sales to allow companies to raise money using tokens without running afoul of securities laws. Her proposal would allow crypto startups a three-year grace period from their first token sale to achieve a level of decentralization sufficient to be compliant with securities laws, including the Howey test.

March 16, 2020: Bitcoin bottoms out at $4,976. Ether is $122.

June 4, 2020: President Trump appoints SEC Commissioner Peirce for another term, to serve until 2025.

July 17, 2020: SEC Commissioner Peirce states that the current regulatory regime can stifle innovation within the cryptocurrency space. Addressing the Howey test, she says:

I think it’s really making it impossible for a project to get started without falling into that Howey definition,” she said, adding that the Howey Test has “been a quite useful framework for us to think about whether an investment contract is, in fact, a security. But it does lead to some really interesting questions about whether things that none of us might have thought are securities actually are securities.”

August 2020: Bitcoin has recovered to $11,500. Ether is $430.

The crypto winter causes Bitcoin and Ether to lose about 80% of their value. It seems there is some regulatory clarity. The CFTC Chairman had called on the SEC to clarify Ether’s status, and then Director Hinman did so in a public speech, declaring Ether a commodity. However, over the following years the clarity will become blurred as the SEC begins to crack down on coins it believes are securities.

‘Regulation by enforcement’

The introduction of Ether and its rapid ascent to legitimacy caused regulators to take a harder look. The CFTC and SEC seemed to agree that Ether was a commodity, but this designation will not be as clear in future years despite calls from SEC Commissioners for clarity. Although the regulators will take action in future years, critics will call it “regulation by enforcement” instead of being proactive. These calls grow louder as the 2021 Bull Run began to take shape.

Read Part 3 of our timeline of cryptocurrency regulation in America, which examines the 2021 Bull Run.

Sean Gellis is the founder of Gellis Law, PLLC, a Florida-based legal and consulting firm focused on GovTech and regulation. Prior to opening his firm, Sean spent nine years in public service, including as the chief of staff for the business arm of Florida government and general counsel of the nation’s third largest state transportation department.