SEC and CFTC unveil new crypto guidance declaring most digital assets are not securities

The Securities and Exchange Commission is seeking to clarify how federal securities laws apply to certain cryptocurrencies and transactions, further cementing its place in changing the agency’s approach to regulating digital assets. 

The Commodity Futures Trading Commission joined the SEC in its 68-page guidance released on Tuesday, which asserts that most cryptocurrencies are not securities, according to a statement. 

“After more than a decade of uncertainty, this interpretation will provide market participants with a clear understanding of how the Commission treats crypto assets under federal securities laws,” SEC Chair Paul Atkins said in a statement. “This is what regulatory agencies are supposed to do: draw clear lines in clear terms.”

The new interpretation details a token taxonomy for stablecoins, digital commodities, and “digital tools,” all of which the agency said are not securities. It also seeks to address how a “non-security crypto asset” could become a security, and clarifies how federal securities laws apply to mining, protocol staking, and airdrops.

The latest move is in stark contrast to how the previous agencies approached digital asset regulation under the Biden administration. Former SEC Chair Gary Gensler took a more cautious approach to crypto, bringing several cases against big-name crypto firms and asserting that most cryptocurrencies were securities. 

“We’re not the ‘securities and everything commission’ anymore,” Atkins said on Tuesday at the DC Blockchain Summit in Washington D.C. Selig also spoke at the summit. 

The SEC has relied on the Howey Test, based on a 1946 U.S. Supreme Court case, to determine if an asset qualifies as an investment contract and, therefore, a security. Since late last year, Atkins has said the agency would unveil a plan for a token taxonomy to delineate between what cryptocurrencies would be securities, which he said would be rooted in the Howey Test.

In a fact sheet released on Tuesday, the agencies said that digital commodities are not securities if they “intrinsically linked to and derive their value from the programmatic operation of a crypto system that is ‘functional,’ as well as supply and demand dynamics.” The agencies also said that digital collectibles that represent rights to trading cards, current events, and other items would not be considered securities. 

The SEC also explained how a digital asset that is not a security would become subject to an investment contract. “A non-security crypto asset becomes subject to an investment contract when an issuer offers it by inducing an investment of money in a common enterprise with representations or promises to undertake essential managerial efforts from which a purchaser would reasonably expect to derive profits,” the agency said in the interpretation. 

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