The Heavy Burden of Thin Regulation : Lessons Learned from the SEC’s Regulation of Cryptocurrencies

The Trump administration has taken a strong stance against regulation. This includes not only ratcheting down the level of regulation and enforcement in general, but it also entails a strong dislike of the absolute number of regulations in existence. For example, within two weeks of taking office, President Trump issued his Executive Order on Reducing Regulation and Controlling Regulatory Costs, which provides in part: “Unless prohibited by law, whenever an executive department or agency... publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.” In a certain regard, this policy of reducing the absolute number of regulations is laudable. The administrative state and the regulation associated with it have expanded massively since the first half of last century. A reduced volume of regulation means that lawyers and society at large can be better versed in their legal obligations and potentially be less encumbered in their activities. With that said, “thin regulation,” as it will be termed, does have its downsides, including potential gaps in regulation, improper regulatory coverage, due process issues relating to notice, legitimacy concerns, and increased risk of market collapse relating to the regulated subject matter.To understand the problems with thin regulation, the best place to begin is with an emerging issue and to explore how President Trump's policy of thin regulation interfaces with it. To that end, the recent advent of cryptocurrencies offers an excellent case study of the dangers of thin regulation. Although the United States Securities and Exchange Commission (SEC) has undertaken efforts to act in this area, the gaps that exist illustrate the problems with thin regulation. Essentially, the SEC has tried to force cryptocurrencies into an existing regulatory structure that does not sufficiently mitigate the dangers that cryptocurrencies create. This essay explores the problems created by the lack of cohesive regulation in this area and demonstrates that the value of a thin regulatory approach is outweighed by the value of a well-reasoned, narrowly tailored approach — which I will term “bespoke regulation.”