SEC Proposes Regulation Crypto Assets to Govern Investment Contracts Involving Crypto Assets

The Securities and Exchange Commission (SEC) has proposed new rules to regulate crypto assets, known as Regulation Crypto Assets. The proposal aims to establish an offering regime for certain investment contracts involving crypto assets and provide issuers with pathways to raise capital under federal securities laws.

According to the SEC, 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 proposed rules define 'covered investment contracts' as investment contracts that meet three requirements: (i) the crypto asset is subject to the investment contract, (ii) the crypto asset is not a security, and (iii) no other assets are subject to the investment contract. Regulation Crypto Assets will not apply to tokenized equity offerings, multi-asset baskets, or investment contracts involving digital securities.

The SEC is trying to solve the problem of existing securities regulations being unsuitable for conventional crypto assets. The proposal aims to facilitate capital formation and accommodate innovation in the crypto asset markets while setting guardrails.