SEC Tweaks Crypto Classification Rules Amid Regulatory Uncertainty

The U.S. Securities and Exchange Commission (SEC) has updated its Frequently Asked Questions release to clarify how certain activities can impact the classification of a cryptocurrency as a security.

The update addresses token buybacks, network upgrades, and marketing claims, stating that these actions alone do not automatically turn a crypto asset into a security. However, if a non-functional network is pitching buybacks as a source of returns for holders, this could potentially trigger securities laws.

The SEC also clarified that once a cryptocurrency system is functional, services to secure or improve the system would not be considered managerial efforts under the Howey test. Additionally, marketing existing uses and announcing future features are generally allowed, as long as they do not promote potential profits.

The update builds on the SEC's March 'Interpretive Release' and comes after the Clarity Act failed to advance in the Senate. The new rules will still heavily depend on the specifics of each case.