SEC Framework Seeks to Resolve Crypto's Regulatory Tug-of-War

The U.S. Securities and Exchange Commission (SEC) is advancing a new "token taxonomy" framework to clarify how cryptocurrencies are classified under securities law, anchoring its approach in the 1946 Howey Test for investment contracts. SEC Chairman Paul Atkins outlined the plan during remarks at the Federal Reserve Bank of Philadelphia's Fintech Conference, emphasizing that the taxonomy would categorize digital assets into four groups: digital commodities tied to decentralized systems, digital collectibles (e.g., art or in-game items), digital tools like memberships or tickets, and tokenized securities representing financial ownership, as noted in a Cryptobriefing report. The framework aims to balance regulatory clarity with innovation, ensuring developers and investors understand which tokens fall under securities oversight, according to the same report.

A key aspect of the taxonomy is its recognition that tokens initially sold as securities may lose that status as projects decentralize. Atkins noted that investment contracts—tokens tied to promises or efforts—can "run their course" once the issuer's role ends, allowing the tokens to trade as non-securities, as detailed in the Benzinga article. This dynamic approach addresses industry concerns about rigid regulatory labels, particularly for blockchain projects that evolve over time, according to Blockonomi. The SEC also plans to allow certain investment-linked tokens to trade on platforms regulated by the Commodity Futures Trading Commission (CFTC) or state authorities, expanding market access, as the Benzinga article notes.

The initiative aligns with broader legislative efforts to resolve the SEC-CFTC regulatory tug-of-war over crypto. Two Senate drafts—the Agriculture Committee's Digital Asset Market Clarity Act and the Banking Committee's Responsible Financial Innovation Act—propose shifting oversight of major cryptocurrencies like Bitcoin and Ethereum to the CFTC as commodities, as reported in CryptoSlate and Yahoo Finance. These bills would mandate stricter capital requirements, custody rules, and disclosure standards for exchanges, while the SEC would retain authority over tokenized securities and "ancillary assets" that straddle the securities-commodities line, as noted in CryptoSlate. However, challenges remain, including the CFTC's limited staffing and capacity to enforce new mandates, as the CryptoPolitan article notes.

Atkins emphasized that the taxonomy is not a signal of relaxed enforcement. Fraud and manipulation will still face strict penalties, he cautioned, reaffirming the SEC's commitment to investor protection, as the Benzinga article notes. The agency is also working with Congress to complement legislative efforts rather than replace them, as seen in recent collaboration on market structure bills, according to the Benzinga article. Meanwhile, the Senate Agriculture Committee's draft—which classifies crypto as commodities—has drawn bipartisan support but faces hurdles in securing enough Democratic votes to pass a filibuster, as the CryptoPolitan article notes.

The framework's implementation hinges on pending Senate votes and CFTC leadership. Trump nominee Mike Selig, currently leading the SEC's Crypto Task Force, is set for a Senate confirmation hearing on Nov. 19, 2025, as lawmakers finalize the bill, as reported in a CoinDesk piece. If confirmed, Selig would oversee the CFTC during a critical period of regulatory realignment, potentially reshaping U.S. crypto markets by 2026, as the CoinDesk article notes.