Friday’s SEC Crypto Task Force Roundtable marked a significant shift from the previous administration’s approach of “regulation by enforcement,” yet it centered on outdated issues rather than introducing innovative proposals to guide the future regulatory landscape for cryptocurrencies.
Since the landmark 1946 Supreme Court ruling in the case regarding the W.J. Howey Company, the classification of a product as a “security” or a “commodity” has been a contentious issue. Courts have found it challenging to consistently apply the “Howey” test to digital assets, which isn’t surprising considering it stems from a decades-old ruling that originally involved citrus groves.
Digital assets defy neat categorization as either a “security” or a “commodity.” They represent an entirely new entity. Nonetheless, the legal distinction is crucial, as the SEC oversees securities while the CFTC oversees products that fall under commodities.
Currently, Congress is contemplating new legislation akin to last year’s FIT21 bill. This proposed legislation aims to move beyond the outdated Howey test and provide clearer definitions for the classification of specific digital assets.
The recent roundtable, attended by renowned crypto legal experts and members of the SEC’s crypto taskforce, should have sparked discussions and proposals for the SEC to present to legislators about the forthcoming regulatory framework for crypto. Unfortunately, much of the conversation revolved around long-standing debates concerning the Howey Test and philosophical considerations about what constitutes a security.
Some participants, like a16z General Counsel Miles Jennings, contributed valuable insights, such as advocating for a focus on the economic realities rather than strictly the legal relations between issuers and investors. However, a significant portion of the discussion diverted to topics like Bitcoin’s role in ransomware and the SEC’s recent guidance on meme coins. Since the SEC and CFTC are likely to share regulatory responsibilities under any new legislation, the boundary between these two agencies is vital for the crypto sector. Establishing clear regulations is essential for issuers to ensure compliance, regardless of whether their tokens are labeled as “securities” or “commodities.”
While I appreciate Commissioner Hester Peirce’s initiative in organizing the roundtable, her signature commitment to transparency and openness, this particular gathering missed a crucial opportunity. Inviting CFTC Acting Chairman Caroline Pham and her team to participate, or at least to observe, would have been beneficial. The CFTC was not mentioned even once, and collaboration between the SEC and CFTC is vital for the crypto industry in the future.
Congress is progressing with its own strategies regarding the classification of digital assets as securities, irrespective of whether the SEC chooses to provide input. For the welfare of the crypto industry, I hope that Commissioner Peirce’s next roundtable will prioritize generating ideas that will help inform the legislation steering the industry in the years ahead.