What is the SEC’s Role in Crypto Regulation?

The inescapable fact remains that the U.S. Securities and Exchange Commission (SEC) is one of the main overseers of crypto markets. When it comes to federal securities laws, the SEC uses them to govern exchanges of digital assets that are considered securities (that is, sold as investment contracts via the Howey Test). 

What is the SEC’s mandate over crypto, how does it approach enforcement and guidance, and what are the most recent developments in SEC crypto regulation? Recent policy initiatives at the SEC, collectively known as “Project Crypto,” are intended to clarify rules.

SEC Authorities and Crypto: Securities Laws Apply

The SEC’s jurisdiction over crypto comes from its mission to defend investors and promote fair markets in securities. The S.E.C. by law regulates “investment contracts,” a class of securities defined expansively in court cases like Howey v. SEC. 

This means the S.E.C. looks at crypto only when tokens are being sold to other people with the expectation of profit from the efforts of others. As SEC Chairman Paul Atkins put the matter in 2025, most tokens do not fit the definition of a security, but if a token was sold as part of an investment contract (eg an ICO that promised future profits), then securities laws apply.

Afterwards though, Atkins noted that an investment contract can expire, meaning a token may start as a security and later trade freely after the project is completed.

To enforce its crypto oversight, the SEC established a specific Crypto Assets and Cyber Unit in its Enforcement Division. This division now renamed as the Crypto Assets and Emerging Technology Division) tackles fraud in digital-asset markets and promotes compliance. It leverages the agency’s expertise to make sure investors are protected in this space. 

As at 2022, the unit had expanded to over 50 staff and filed over 80 crypto-related cases, recovering more than $2 billion for harmed investors. Its cases included unregistered token offerings, Ponzi and other fraudulent schemes, unregistered exchanges as well as products involving crypto lending and staking, DeFi platforms, NFTs and stablecoins.

In essence, the SEC’s role in crypto regulation is to demarcate what should be treated as a security and not a security in the world of crypto and to apply the rules regarding securities laws to those things that are. 

As the SEC’s own website states:

“The Crypto Task Force seeks to provide clarity on the application of the federal securities laws to the crypto asset market”.

The SEC is trying to strike a balance between promoting innovation and protecting investors under its current mandate by emphasizing disclosure and registration where appropriate.

How Crypto Assets Are Categorized: The Howey Test

Classifying which tokens are securities is a major component of SEC crypto regulation. U.S. laws governing securities do not define a crypto asset, and so regulators apply long-established tests. The Howey test from the Supreme Court (1946) is the standard. It implies that an “investment contract” exists when there is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others. 

This test is applied to token offerings. If developers sell tokens to finance a project that specifically promises returns for investors, the S.E.C. sees that sale as a securities offering.

Chairman Atkins remarked that “crypto asset” is merely a tech term, saying the law cares about the economic reality of the transaction. 

So even though a token can be exchanged on blockchains, the sale of it in some cases is considered as a security. Guidance from the SEC suggests it will continue to treat tokens sold as investment under contract law as securities and also permit matured projects to exit that category after expiration of an initial contract. 

For instance, in the case of Ripple, the SEC successfully argued that institutional sales of the XRP token were investment contracts (and thus securities).

In late 2025, the leaders of the SEC revealed they were launching a project to develop a token taxonomy based on Howey. They are writing interpretive guidance that explains a taxonomy for crypto assets and identifies whether a crypto asset is an investment contract. This is intended to help determine which crypto assets are under the jurisdiction of the SEC, and which are not.

In a nutshell, under SEC crypto regulation howey-test tokens = regulated, others typically ≠ regulated by SEC. That is why Bitcoin and Ether have not been classified as securities, but many I.C.O. tokens have. 

Notable Crypto Initiatives and Policies of SEC

There have been a variety of signals from the SEC over the last couple of years regarding changes to its crypto policy, in speeches, enforcement actions, and proposed rules. These developments include:

Crypto Task Force (2017-present): Headed by Commissioner Hester Peirce, this inter-agency group seeks industry and analyst feedback on how to craft crypto rules. It has conducted roundtables, called for public input and issued FAQs to help the industry. Its goal is to set clear regulatory lines and offer a practicable path to registration for crypto assets and market intermediaries.

Project Crypto (2025-2026): In late 2025, SEC Chairman Atkins launched “Project Crypto,” a comprehensive plan for rewriting the rules of engagement around crypto-assets. In speeches he pledged new rules for the sale of digital assets, safe harbors or exceptions for some crypto activities and clarifications around broker-dealer regulations for crypto. 

In the possible category, for instance, the SEC announced that it might change rules to allow trades in cryptos on national securities exchanges. Atkins called the proposals a step toward a new day at the SEC, one that would lean toward innovation and capital formation, while also protecting investors.

Regulatory and Exchange-Listing Moves: The SEC has made moves to fold crypto into the larger supervised world of finance. The Commission authorized in-kind creation and redemption of ETPs based on Bitcoin and Ether products, effective July 2025. This was said to bring crypto ETFs into line with the rest of the industry and was hailed as part of building a rational regulatory framework for crypto. 

The SEC has also approved listing proposals for mixed crypto ETFs and options on Bitcoin ETPs, opening to comments where necessary. 

Law Coordination: The SEC advocates new laws, but does not wait for them. Chairman Atkins expressed support for the efforts of Congress to create a clear crypto market structure by statute. 

He observed that SEC efforts were intended to complement, rather than replace Congress’s role. At the same time, the White House in 2025 issued a crypto policy report that called for coordinated SEC/CFTC rulemaking and new safe harbors from token projects. The leaders of the S.E.C. have said that they will move on with rule-making under its current authority if, or until, Congress enacts specific laws.

Chairman Atkins and others insist that full enforcement options are still available on the table. Division of Corporation Finance, for example, has recently pointed out that after new guidance comes out, it will still offer additional guidance as needed to promote capital formation and provide investor protection while accommodating innovation in crypto space.

Enforcement and Compliance Focus

Enforcement has always been a large component of SEC crypto regulation. From the 2010s into the early 2020s, the S.E.C. broke up many crypto issuers and platforms for failing to register their offerings. High-profile lawsuits targeted the issuers of messaging apps (Kik, Telegram), token projects, and major exchanges. 

The S.E.C.’s suit in 2020 against Ripple Labs charged that the company was selling XRP tokens as unregistered securities. In 2023, a court partially concurred that Sales of XRP to institutions were securities; trades on the public markets weren’t. 

Ripple was eventually given a fine around $125 million, but after an extensive court battle the SEC abandoned further appeals in 2025.

The SEC’s enforcement stance has visibly softened under the Trump-appointed commission. The S.E.C. closed the books or withdrew several high-profile crypto cases as of late 2025. SEC press reports indicated that the commission had dropped charges against Binance, Coinbase and Kraken.

However, the SEC has hinted that it will continue to pursue fraud aggressively. Its Crypto Assets and Cyber Unit is still pursuing transgressors. So while routine ICO/ETF applications may be facilitated, outright fraudulent or deceptive crypto operations are still on the enforcement’s to-do list. 

SEC crypto enforcement has moved away from entire industry litigation and now focuses more on ‘case-by-case’ action against wrongdoing.

Timeline of Notable SEC Crypto Actions

SEC vs. Other Regulators

As the SEC concentrates on the securities side of things, U.S. regulators oversee crypto from various perspectives in other agencies as well. The CFTC, oversees cryptocurrencies that are considered commodities (like Bitcoin or Ether futures) and derivatives markets. This recent SEC/CFTC Harmonization Initiative speaks to attempts being made toward unified crypto regulation across agencies. 

Chairman Atkins and CFTC’s OFR are reportedly working together to develop a more formalized token taxonomy to eliminate overlap. 

With the existing SEC crypto regulatory framework, topics such as custody, advertising of funds and oversight of brokers/dealers all become subject to the jurisdiction of the SEC when products are deemed to be securities. 

Expert Takes on SEC Crypto Regulation

Major exchanges (NYSE, Nasdaq) have warned that any “innovation exemptions” must threaten investor protection. The World Federation of Exchanges (WFE) urged the SEC not to allow crypto companies to circumvent regulatory principles that have protected investors and supported fair and orderly markets for decades. 

Crypto industry advocates in general cheer the SEC’s approach. Law firm analyses contend that things like safe harbors for early-stage tokens and quick ETF approvals are in sync with what innovators desire. SEC Commissioner Peirce and others have longed for economic reality testing and a more rules-based regime, and Atkins’ Project Crypto follows this thought. 

Legal analysts emphasize clarity. To avoid confusion, many practitioners say that SEC rulemaking is required, not just enforcement actions. The upcoming SEC taxonomies and guidance are also welcomed as an important step toward certainty. 

At the same time, some skepticism lingers: without statutory revisions, critics fear that the S.E.C. could still end up leaning heavily on expansive readings of old laws.

Overall, the voice among experts is that the SEC is now clearly enabling an innovation-protection balance. Chairman Atkins himself summed it up nicely saying the SEC’s new agenda  will focus on innovation, capital formation, market efficiency and investor protection. 

Conclusion

SEC crypto regulation in 2026 and beyond will likely involve new rulemaking meaning that official rulemaking or guidance from the SEC on token offerings, trading and custody should be anticipated. When should tokens no longer be considered securities, and what filings/exemptions apply to crypto-issuers? These are expected to be clearly defined.

Proposed rules for token sales or trading on exchanges may be introduced, as hinted in the 2025 agenda.

The SEC will retain the power to enforce laws related to misconduct. The SEC is expected to work with the CFTC and others, to clarify overlapping jurisdictions. 

The legislation has not been passed yet, but leaders at the SEC said they intended to complement any new laws, rather than supersede them. 

Glossary

SEC (Securities and Exchange Commission): The US  federal government agency responsible for enforcing securities laws and regulating stock exchanges, brokers and public companies. In crypto, it also regulates tokens that are considered securities.

Crypto Asset/Digital Asset: A digital representation of value (i.e. cryptocurrency, token) that can be exchanged or invested. This includes Bitcoin, Ether and other blockchain-based tokens.

Howey Test: The legal test from the case SEC v. Howey (1946) that is used to prove or disprove whether an investment is a security. Under Howey, a contract is an investment if investors pay in money and expect to make a profit based on others’ work.

Investment Contract: A security under U.S. law;. If a crypto token sale crosses the thresholds of Howey, it is deemed an investment contract and falls under SEC control.

Crypto ETF/ETP: Exchange-Traded Fund/Product which owns crypto assets such as Bitcoin. Regulated by the SEC, approved crypto ETFs trade on stock exchanges. In 2025, the SEC permitted for in-kind trading of Bitcoin/Ether ETPs.

DeFi (Decentralized Finance): Financial services (lending, trading) on the blockchain without central intermediaries. 

Crypto Task Force: A unit of the SEC’s Enforcement Division to analyze crypto markets, communicate with stakeholders and suggest policy measures. Led by Commissioner Peirce, it focuses on crypto securities compliance and innovation.

Frequently Asked Questions About SEC Crypto Regulation 

What is the S.E.C.’s role in supervising cryptocurrency?

Federal securities laws in the crypto space are enforced by the U.S. Securities and Exchange Commission. It regulates digital assets that qualify as securities (e.g. tokens offered in a sale of an investment contract), which need to be disclosed and registered. The SEC’s mission is to protect investors from fraud and maintain fair and orderly markets.

How does the S.E.C. to determine whether a cryptocurrency is a security?

That would be the Howey Test. If a token sale amounts to an investment of money in a common enterprise with an expectation of profit from the efforts of others, it is classified as an “investment contract” (a security) under law. According to SEC Chairman Atkins, not all tokens are securities by default but if sold as part of investment plans, they would be.

What is the SEC’s Crypto Special Task Force?

The SEC’s Crypto Task Force within the Crypto Asset And Cyber Unit was created to assist the agency in determining how federal securities laws relate to crypto. It solicits the views of private and government industry stakeholders to draw clear regulatory lines, for digital assets, in order to propose rules or guidance that facilitate innovation while guarding against investor abuse.

References

SEC

Reuters

Paul Hastings