Congress Races to Define "Digital Commodity" in Historic Crypto Overhaul

Republicans in Congress are poised to deliver historic crypto legislation in 2025, as part of an ambitious effort to position the United States as the global “Crypto Capital.” A key legislative milestone already achieved is the passage of the GENIUS Act on July 18, 2025, which established a federal framework for payment stablecoin activities. The bipartisan legislation is seen as a critical first step in building a robust regulatory environment for digital assets, with broad implications for financial innovation and market accessibility [1].

The legislative agenda is now shifting to comprehensive market structure legislation. The House passed the Digital Asset Market Clarity Act of 2025 (CLARITY Act) on the same date as the GENIUS Act, while the Senate is working on the Responsible Financial Innovation Act (RFIA). Both bills aim to clarify the regulatory roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), with the CLARITY Act granting the CFTC jurisdiction over digital commodities and maintaining the SEC’s authority over investment contracts. A key challenge lies in defining what constitutes a “digital commodity” versus a “security,” a distinction that remains contentious among lawmakers and regulators [1].

The Senate Banking Committee has set a target of September 30, 2025, to advance market structure legislation out of committee, a move that underscores the urgency with which the Trump administration is pursuing this agenda. The President’s Working Group on Digital Asset Markets, established shortly after the inauguration, has released a report that serves as a blueprint for regulatory reform. This report advocates for a “pro-innovation mindset” toward digital assets and blockchain technologies, calling for a streamlined and technology-neutral approach to regulation [1].

State securities regulators, particularly through the North American Securities Administrators Association (NASAA), are actively shaping the legislative debate. NASAA has emphasized the importance of preserving state antifraud enforcement authority as federal regulators refine their oversight. Concerns have been raised that the RFIA’s directive to the SEC to define the term “investment contract” could narrow the flexible interpretation used in the Howey test, potentially limiting states’ ability to investigate fraudulent crypto activities. In response, NASAA proposed the Support Anti-Fraud Enforcement Act (SAFE Act), which seeks to ensure that federal legislation does not preempt state enforcement powers [1].

Federal agencies are also accelerating their efforts to adapt to the evolving digital asset landscape. The SEC launched “Project Crypto,” an initiative aimed at modernizing securities rules to enable on-chain financial transactions. This includes proposals for fit-for-purpose disclosures, exemptions, and safe harbors for activities such as initial coin offerings and airdrops. The CFTC has initiated its own “Crypto Sprint,” a plan to implement the recommendations of the Working Group Report and expand access to spot crypto asset trading on registered exchanges. Meanwhile, federal banking regulators have rescinded previous restrictions on crypto activities and issued new guidance to clarify permissible practices for banking institutions [1].

The convergence of legislative and regulatory efforts is expected to create a more stable and predictable environment for crypto market participants. However, the path forward remains complex, with potential conflicts between federal and state jurisdictions, as well as disagreements over the interpretation of securities law. The proposed CLARITY and RFIA bills, while representing significant progress, still require substantial revisions and reconciliation before they can move toward final passage. Analysts note that the process of drafting and implementing durable regulatory frameworks may take years, particularly as agencies engage in extensive rulemaking to align existing frameworks with congressional mandates [1].

Source: [1] Crypto's integration into the traditional financial system is underway (https://www.davispolk.com/insights/client-update/cryptos-integration-traditional-financial-system-underway)