SEC Clarifies Stance on Crypto Assets

In a recent address to the crypto industry, SEC Chairman Paul Atkins stated that the majority of crypto assets do not qualify as securities. This guidance aims to clarify which assets are considered securities and which fall under investment contracts.

Atkins emphasized that activities like protocol mining (including Bitcoin) and staking, as well as crypto airdrops—where tokens are distributed to users—are not classified as securities. He expressed optimism that this interpretation would bring clarity to the market, stating that regulators should communicate in clear language.

He remarked, “After more than a decade of uncertainty, this interpretation will provide market participants with a clear understanding of how the Commission will treat crypto assets under federal securities laws.” Immediately following this announcement, the Commodity Futures Trading Commission (CFTC) indicated that it would align its practices with the SEC’s interpretation.

The CFTC described this move as a significant step toward clearer treatment of crypto assets, stating it supports Congress in creating a comprehensive framework for the market. Although legislative progress on the CLARITY Act has slowed recently, the SEC’s actions suggest regulators are proactively working to establish clearer industry rules.

Historically, the SEC evaluated digital assets under the Howey Test, a framework based on a Supreme Court case often referenced in enforcement actions against crypto firms. Atkins criticized this past approach, citing it as a failure to provide necessary clarity regarding which agency should regulate various virtual currencies. He insisted, “We are not a securities commission,” which was met with enthusiastic applause from industry experts.

The SEC’s recent classification system divides digital assets into five categories: digital goods, digital collectibles, digital tools, stablecoins, and digital securities. It appears that only digital securities, such as tokenized securities—which represent traditional investments like stocks—are directly under the SEC’s regulatory control.

For an asset to be deemed a digital commodity, authorities will evaluate whether it gains value from the operational framework of a cryptographic system or from the anticipated profits from the control of others. Bitcoin and Ethereum are highlighted as digital goods, integral for securing their respective networks through decentralized market participant support.

Additionally, digital collectibles, associated with creative works or in-game items, are suggested to include most NFTs and meme coins. Meanwhile, digital tools function as memberships or event tickets, comprising a separate category.

The SEC’s enforcement suggests that “non-security crypto assets” could still qualify as investment contracts under certain issuer-related representations. Nonetheless, such contracts do not automatically entail that the digital assets traded in secondary markets are subject to federal securities laws.

Notably, the SEC noted that if purchasers no longer hold reasonable expectations about the issuer’s promises related to the digital assets, those assets might escape federal securities laws.

Atkins hinted at the potential for safe harbor exemptions for some crypto projects. He mentioned these exemptions might soon apply to startups worth up to $5 million experimenting with crypto assets in their first four years, allowing such firms to raise up to $75 million through investment agreements involving specific crypto assets. The expectation is that a proposed rule regarding this will be made available for public comment shortly.