Bitcoin News Today: Cryptocurrency Regulation Shifts to Emphasize Substance Over Form

The legal and regulatory landscape for cryptocurrencies is increasingly focused on what lies beneath the surface: the substance of digital assets rather than the form they take [1]. This shift is evident in ongoing legal proceedings and regulatory actions that challenge the traditional boundaries of financial law, especially in how blockchain-based innovations are categorized and governed.

In a high-profile case, Roman Storm’s prosecution has sparked a broader debate over whether the function of a protocol—such as Tornado Cash—should override its technical form. Prosecutors argue that the platform’s true economic impact—facilitating money laundering—justifies its classification as a financial intermediary, despite its decentralized and non-custodial structure [1]. Meanwhile, defense arguments emphasize the autonomy and permissionless nature of the code, suggesting that the form—decentralized, autonomous smart contract—should be the primary lens through which it is judged.

This debate mirrors a larger tension in the crypto industry: the tendency to use innovative technology to perform traditional financial activities without the accompanying regulatory obligations. Skeptics note that many crypto tokens function similarly to stocks, with staking yields resembling dividends, token burns acting as buybacks, and airdrops serving as IPOs [1]. Yet, these tokens often avoid the registration and compliance requirements that apply to traditional securities.

A16z Crypto has highlighted this distinction, categorizing tokens as either “network tokens,” which derive value from decentralized networks, or “company-backed tokens,” which rely on off-chain entities and may be used to circumvent securities laws [1]. The firm also identifies “security tokens” as a third category—tokens that represent traditional securities and should be regulated as such regardless of their digital form. This framework supports the “substance over form” approach, where regulatory oversight follows the economic reality of a product rather than its technical design.

Industry advocates, however, push back against this characterization. Travis A. Flaherty, a crypto commentator, argues that the future of the industry lies in tangible applications and real-world utility through tokenization [5]. This view aligns with the idea that crypto can evolve beyond speculative investment and into a foundational tool for economic transformation.

Regulators are also beginning to act on these concerns. A lawsuit in Oregon has been filed against a major crypto exchange for offering unregistered securities, signaling a growing willingness among state authorities to enforce securities laws in the crypto space [7]. At the federal level, proposed changes to Bitcoin ETF options aim to create more flexible trading frameworks, reflecting the market’s demand for structured and compliant financial instruments.

In Quebec, the local legal framework has provided some stability to the crypto market, particularly for tokens like Shiba Inu, where clearer regulations have improved investor confidence [8]. This regional approach underscores how localized regulatory strategies can influence broader market sentiment and behavior.

As the industry moves forward, the line between form and substance will remain a central issue. While the speculative allure of crypto has driven much of its growth, the increasing regulatory emphasis on legitimacy and utility suggests a potential turning point. The industry’s long-term success may depend on its ability to deliver real value beyond the digital façade. Whether this shift leads to greater adoption or stricter constraints remains to be seen—but the debate is no longer about whether substance matters. It is now about how to define it.

Source:

[1] Blockworks – [https://blockworks.co/news/crypto-substance-vs-form](https://blockworks.co/news/crypto-substance-vs-form)

[5] Facebook · Travis A. Flaherty – [https://www.facebook.com/travis.flaherty/posts/crypto-took-a-hit-today-why-a-whale-dumped-billions-in-btc-liquidations-followed/10240070187873426/](https://www.facebook.com/travis.flaherty/posts/crypto-took-a-hit-today-why-a-whale-dumped-billions-in-btc-liquidations-followed/10240070187873426/)

[7] Levi & Korsinsky, LLP – [https://zlk.com/learn?p=blue-skies-and-watchdogs-the-role-of-state-regulators-in-securities-law](https://zlk.com/learn?p=blue-skies-and-watchdogs-the-role-of-state-regulators-in-securities-law)

[8] AInvest – [https://www.ainvest.com/news/shiba-inu-price-trajectory-quebec-legal-framework-reshapes-investor-trust-crypto-2508/](https://www.ainvest.com/news/shiba-inu-price-trajectory-quebec-legal-framework-reshapes-investor-trust-crypto-2508/)