For more than a decade, American investors and innovators have operated under a cloud of uncertainty over when cryptoassets implicate federal securities laws. Markets work best when everyone understands the rules. However, for too long, financial regulators have responded to good faith regulatory inquiries with silence, erecting barriers to entry and ad hoc enforcement actions that only deepened the industry’s confusion.
The Securities and Exchange Commission is taking an important step to reverse that previous approach.
The Commission has published a historical interpretation that finally provides clear guidelines. We establish a simple taxonomy of cryptoassets (most of which are not securities) and clarify how the Supreme Court’s Howey test applies when a cryptoasset is part of an investment contract.
This action builds a bridge to the historic and much-needed bipartisan market structure legislation moving through Congress. Only Congress can rewrite the law, and we stand ready to work with CFTC Chairman Michael Selig to implement the CLARITY Act. In the meantime, we are providing the responsible regulatory approach that markets demand.
Our interpretation, based on existing law and informed by broad public opinion, establishes four categories of cryptoassets that are not securities: digital commodities, digital collectibles, digital tools, and payment stablecoins under the GENIUS Act.
Only one class remains under federal securities laws: digital securities, tokenized versions of conventional securities like stocks and bonds. This distinction returns the Commission to its primary mission (and statutory authority) of protecting investors involved in securities transactions.
However, a workable framework requires more than a taxonomy. You should also clarify how the Howey test applies to cryptocurrencies. While it is clear what an action is, the statute does not define “investment contract,” so its definition relies on a Supreme Court test.
In essence, the Howey test defines an investment contract as an investment of money in a common enterprise with a reasonable expectation of profits derived from the essential managerial or business efforts of others. Early-stage blockchain projects sometimes sell tokens in a capital-raising transaction tied to the development of software, a protocol, or a network. When teams make explicit promises that lead buyers to rely on the team’s continued efforts with the expectation of profit, the transaction constitutes an investment contract.
Equally important, our interpretation explains how and when an investment contract terminates, freeing the crypto asset from securities law obligations. The key is clear disclosure: project teams must lay out the representations or promises they are making so that investors understand the rights they are purchasing.
As a project evolves, once the team’s promised efforts have been completed or resolved, buyers no longer expect profits from those essential administrative efforts and the investment contract ends. In other words, trust in Howey must arise from clear and unambiguous promises that the project team intends to make.
The SEC’s role is to provide merit-neutral clarity, not to dictate how teams design their projects.
By providing this guidance as Congress finalizes legislation, we ensure that cryptoasset innovation can take root and thrive here at home immediately. Clear rules also allow regulators to focus law enforcement resources where they belong: combating fraud and protecting market integrity within the limits of our legal authority.
For generations, America’s capital markets have been the most dynamic and reliable in the world. A crucial ingredient to that success is our regulatory system’s ability to adopt new technologies without sacrificing strong investor protections.
The emergence of blockchain networks and cryptoassets is another opportunity to achieve that balance.
Crypto markets, and the millions of Americans who participate in them, deserve long-overdue clarity. Under President Trump’s leadership, we are on the right track.
