What are the risks of investing in cryptocurrencies?

One problem facing regulators is that the legal standard for defining a security was set more than 70 years ago in a Supreme Court Case called SEC v. W.J. Howey Co. But that legal definition hasn't been tested much in the years since, according to Clyde Tinnen, a partner in the corporate team at Withers Bergman.

"The federal government has to play a role there," he said in an interview. "No one has certainty where this train is going."

He added, "In some cases, it's probably better to wait to try and understand the end-use applications."

On Monday, the Senate Banking Committee will hear from the SEC and the CFTC about their approach to the issue. Some groundwork has already been laid. The CFTC has approved the listing of bitcoin futures and the SEC has warned investors about the dangers of ICOs and cryptocurrencies. Treasury Secretary Steven Mnuchin recently discussed the need to keep cryptocurrencies out of the hands of "bad guys."

Managing the balance between the positives of crytocurrencies and regulators' mandate to protect investors will likely be discussed on Monday, said Nolan Bauerle, director of research of the news site CoinDesk, in an email.

"The CFTC and SEC are fully empowered to regulate certain aspects of cryptocurrencies, and it's unlikely they'll need to ask the Senate for any additional legislative tools," he said. "Ponzi schemes built from cryptocurrencies themselves and not derivatives have already and will continue to be pursued by the CFTC."