The SEC issued joint guidance with the CFTC on March 19 to clarify how securities laws apply to digital assets. While the new framework represents improvement over former Chair Gensler's approach, it falls short of providing the industry clarity needed.
The guidance addresses staking and meme coins favorably, acknowledging that the SEC's "regulation by enforcement" under Gensler had stifled the industry. However, critical gaps remain in defining what constitutes an investment contract under the Howey test.
The SEC's silence on requiring actual contractual obligations is problematic. Instead, it uses vague "facts and circumstances" language that could still allow enforcement based on promotional materials and social media posts rather than formal agreements.
The guidance also fails to clearly address secondary market trading. While recognizing digital assets aren't securities "in perpetuity," it maintains that secondary purchases can still be subject to securities laws based on buyer expectations.
Legal experts argue the SEC should adopt Judge Torres's approach from the Ripple case, which recognizes that blind bid-ask exchange transactions don't reasonably create investment contract expectations. The current guidance leaves regulatory ambiguity that could enable future enforcement actions against the crypto industry.