SEC Unveils New Framework to Clarify Crypto Asset Regulation
In a significant shift aimed at resolving years of regulatory ambiguity, U.S. Securities and Exchange Commission (SEC) Chair Paul Atkins announced a new interpretive framework for crypto assets during his address at the DC Blockchain Summit on March 17, 2024. The initiative seeks to draw clearer lines between securities and non-securities in the digital asset space, providing much-needed guidance for developers, investors, and market participants.
A New Taxonomy for Digital Assets
At the core of the SEC’s new approach is a formal token taxonomy. Chair Atkins stated that the agency will classify several categories of digital assets as outside the definition of a security under federal law. Specifically, the framework aligns with the proposed GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins) to explicitly categorize the following as non-securities:
- Digital commodities (e.g., Bitcoin, Ether)
- Digital collectibles (e.g., NFTs representing art or unique items)
- Digital tools (assets primarily functional within a software or protocol)
- Payment stablecoins (stablecoins used for transactions)
According to Atkins, the only digital assets that would remain unequivocally subject to SEC enforcement as securities are digital securities—tokenized versions of traditional financial instruments like stocks, bonds, or investment fund shares.
Addressing the “Investment Contract” Question
The framework also tackles the complex application of the Howey Test, the Supreme Court precedent used to determine if an asset is an “investment contract” and thus a security. Atkins clarified that even if a crypto asset itself is not a security, its offering could be if sold as part of an investment contract.
A pivotal part of the new interpretation defines when such an investment contract ends. The SEC will consider the contract concluded once the “essential managerial efforts” promised by a project team are fully completed or have permanently ceased. At that point, the underlying digital asset could be freed from securities law constraints. To ensure transparency, the framework mandates that project teams must clearly disclose all representations and promises related to these efforts, so purchasers understand exactly what rights or expectations they are buying.
The guidance also extends to specific activities, stating that Bitcoin mining, airdrops, and protocol staking—when conducted without ongoing managerial promises—generally would not constitute securities offerings under this interpretation.
Pathways for Compliance: Proposed Exemptions and Rulemaking
Beyond interpretation, Chair Atkins previewed a broader rulemaking initiative, dubbed “Regulation Crypto Assets,” intended to create structured, compliant pathways for industry growth. Key proposals include:
- A startup exemption allowing developers to raise up to $5 million over a period of four years.
- A fundraising exemption permitting raises of up to $75 million in a 12-month period, contingent on specific disclosure requirements.
- A formal investment contract safe harbor to provide certainty on when and how crypto assets shed their security status post-offering.
Atkins indicated the SEC Commission will consider publishing these proposals for public comment in the coming weeks. He stressed, however, that comprehensive market structure legislation from Congress is ultimately needed to “future-proof” crypto regulation.
Looking to Congress: The CLARITY Act
Pointing to ongoing bipartisan efforts on Capitol Hill, Atkins specifically referenced the CLARITY Act (Clarity for Digital Assets, Innovation, and Technology) as a potential legislative foundation. This bill, among other things, would codify distinctions between commodities and securities and assign primary regulatory authority over crypto commodities to the CFTC. The SEC’s new framework appears designed to operate in parallel with, and potentially inform, such congressional action.
Disclosure: This article was edited by Estefano Gomez. For more information on how we create and review content, see our Editorial Policy.
