SEC's Token Taxonomy Sparks Regulatory Tug-of-War With CFTC Over Crypto Control

The U.S. Securities and Exchange Commission (SEC) is advancing a "token taxonomy" framework to clarify which cryptocurrencies qualify as securities, with Chairman Paul Atkins emphasizing a balanced approach to regulation that supports innovation while maintaining strict enforcement against fraud. The initiative, rooted in the 1946 Howey Test legal standard, seeks to categorize digital assets into four groups based on their function and structure, excluding many tokens from securities classification, according to a report.

Atkins outlined the plan during the Federal Reserve Bank of Philadelphia's Fintech Conference, stating that tokens tied to decentralized systems, digital collectibles, and utility tools like memberships would not be deemed securities, per a Benzinga article. In contrast, tokenized securities representing financial ownership would remain under SEC oversight, the article notes. The framework also acknowledges that tokens initially sold as securities may lose that status as projects decentralize and issuers relinquish control—a concept long debated in crypto circles, according to a LookonChain report.

The taxonomy aims to streamline compliance for developers and investors while complementing broader legislative efforts in Congress. Multiple market structure bills are progressing through the House and Senate, with bipartisan proposals shifting primary crypto oversight to the Commodity Futures Trading Commission (CFTC) for digital commodities, as reported by Cryptopolitan. This shift, however, raises concerns about the CFTC's capacity to handle increased responsibilities, as the agency is currently understaffed with only one active commissioner, as noted by CryptoNews.

The political landscape further complicates the regulatory picture. A bipartisan Senate bill introduced by Senators John Boozman (R-AR) and Cory Booker (D-NJ) proposes granting the CFTC authority over spot crypto trading, with provisions to expand the agency's staffing and resources, as reported by CryptoNews. The bill also mandates collaboration between the SEC and CFTC to avoid regulatory arbitrage, reflecting growing industry and governmental momentum to establish a cohesive framework, according to a Yahoo Finance article.

Meanwhile, the Trump administration's nominee for CFTC chair, Mike Selig, faces a Senate confirmation hearing amid stalled legislative progress, as noted by TradingView. The CFTC's potential expansion aligns with broader efforts to position the U.S. as a global crypto hub, including plans to enable listed spot crypto trading on futures exchanges and facilitate cross-border harmonization, as discussed by TradingView.

As the regulatory landscape evolves, market participants await clarity on how these frameworks will coexist with existing laws. With the SEC and CFTC navigating overlapping jurisdictions and Congress working to finalize legislation, the ultimate structure of crypto regulation remains in flux, balancing innovation incentives with investor protections, as reported by Le Monde.