A Canadian social-media startup is gearing up to challenge Washington’s ability to regulate the fledgling cryptocurrency industry.

Social-media startup Kik Interactive Inc. of Waterloo, Ontario, plans to fight an expected enforcement action from the Securities and Exchange Commission over a 2017 initial coin online offering, Chief Executive Ted Livingston told The Wall Street Journal, setting the stage for a legal battle that could have broad ramifications for the digital-currency market.

The SEC’s enforcement division believes Kik issued an unregistered security when it sold $100 million in “kin,” a digital token that Kik says works like a currency on the its platform, according to Mr. Livingston and documents reviewed by the Journal.

The SEC declined to comment.

At issue is whether kin should be considered an investment security. The SEC has said most tokens issued in ICOs, public offerings of bitcoin-like digital tokens that exploded in popularity in 2017, fall into that category. Yet Kik and others in the cryptocurrency industry say the tokens represent a new kind of asset that shouldn’t be subject to the same rules as stock or bond offerings.