SEC Crypto Regulation: A Classification Conundrum

The US Securities and Exchange Commission (SEC) plays a crucial role in regulating the cryptocurrency industry. The agency's primary focus is not on supervising blockchains, but rather on determining whether a digital asset is considered a security.

This classification is key to understanding SEC crypto regulation, which drives everything from enforcement letters to token listings on US exchanges.

The SEC uses the Howey test to determine if an asset is an investment contract, and thus a security. This framework has undergone recent revisions, with five categories for digital assets now defined by the Regulation Crypto Assets rulemaking.

Only one of these categories treats a token as inherently a security. The majority of tokens, including Bitcoin, Ether, and XRP, fall under the classification of 'digital commodities', but can still be packaged in a way that triggers registration duties if they are treated as investment contracts.