Crypto Rules Still Vague: Why the New Guidance Falls Short

The Securities and Exchange Commission (SEC) released new rules on March 19, together with the Commodity Futures Trading Commission, hoping to clarify how U.S. securities laws apply to digital assets. The move is a step forward, especially on topics like staking and meme coins, and it corrects some of the confusion caused by former Chair Gary Gensler’s enforcement‑by‑action approach. Yet, the guidance still leaves many critical questions unanswered.

Defining an “Investment Contract” Under the Howey Test

• Core Issue: How the SEC defines an “investment contract” when a token is sold as part of a broader scheme promising future profits.
• Current Guidance: A contract exists when the developer’s statements and actions “induce an investment of money in a common enterprise” and create a reasonable expectation of profit.
• Ambiguity: The wording does not clearly separate the contract from the token, leaving room for interpretation.

During Gensler’s tenure, the SEC often built an investment‑contract claim from public statements—tweets, white papers, marketing posts—even when no concrete promise was made. The new rules now require that any representations be explicit, unambiguous, and detailed before a sale. Still, they allow the possibility that vague public hype could be enough to trigger securities law. The guidance does not firmly reject the idea that a token’s value can be driven by marketing alone, as it has been with collectibles like Beanie Babies.

Secondary‑Market Trading

• Key Point: A token is not permanently an investment contract just because it once was.
• Guidance: Tokens remain subject to the Howey test on exchanges if buyers “reasonably expect” that issuer promises stay linked to the asset.
• Limitations: Only two examples of when an investment contract separates from a token are offered, and there is no clarity on whether the buyer must have a direct contractual relationship with the issuer.

This ambiguity could let future regulators or courts expand the test in unpredictable ways. A clearer approach would follow Judge Analisa Torres’s ruling in Ripple, which held that a token sold on a public exchange—where buyers do not know the seller’s identity—cannot reasonably expect that their money will be used to generate profits for the issuer. The SEC should adopt this reasoning explicitly, preventing enforcement from treating every exchange trade as a securities transaction.

Risks of Inadequate Language

• Potential Outcome: The SEC risks reviving Gensler‑style enforcement if it does not sharpen its language.
• Consequences: Private lawsuits could target exchanges or other industry players, and the SEC might interpret its own guidance to impose stricter rules.
• Current State: The current version of the rules merely gives a facelift to an old enforcement model, leaving the industry in a precarious position.

Call to Action

The crypto community must engage with the comment period and push for clearer, more stable regulations. Only then can digital assets thrive under a predictable legal framework.