Security Check: Cryptocurrency Regulatory Reform

By Matthew P. Bertelli on October 27, 2025

Background

Cryptocurrency has been the subject of public fascination, legal scrutiny, and financial concern since bitcoin, the original decentralized payment cryptocurrency, launched in 2009. Since then, various cryptocurrencies have emerged, including stablecoins like Tether, meme coins like Dogecoin, and non-fungible tokens (NFTs). This blog post examines the current state of U.S. federal securities regulation as it applies to cryptocurrency and digital assets,[1] the latest developments by and prospective action from authorities such as the U.S. Securities and Exchange Commission (“SEC”), among others, and the practical effect on businesses and investors.

The SEC, the federal government agency responsible for enforcing the federal securities laws, was generally skeptical of cryptocurrency and other digital assets during the Biden administration, with Gary Gensler serving as SEC Chair from April 2021 to January 2025. During his 2024 presidential campaign, President Trump espoused a notable change in posture on cryptocurrency regulation while public sentiment and interest shifted to a more favorable view. Shortly after President Trump’s inauguration in 2025, SEC Acting Chair Mark Uyeda launched a task force focused on clarifying the regulatory framework around digital assets.[2] President Trump also signed an executive order to establish regulatory clarity by creating a “President’s Working Group on Digital Asset Markets” to review existing regulations applicable to digital assets.[3]

Security Test

Any entity interested in offering for sale, or making an investment in, a digital asset such as cryptocurrency should carefully consider whether the federal securities laws apply to avoid liability and potential penalties and understand their rights and responsibilities. A key threshold issue is whether the digital asset is a security under those laws. The term “security,” as defined in the Securities Act of 1933, as amended (the “Securities Act”), includes an “investment contract” and other instruments such as stocks, bonds, and transferable shares.[4] Any digital asset should be analyzed to determine whether it has the characteristics of any product that meets the definition of a “security” under the federal securities laws to ensure compliance and mitigate legal risk.

The seminal U.S. Supreme Court Howey case and subsequent case law have found that an “investment contract” (i.e., a security) exists if there is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.[5] The Howey test applies to any contract, scheme, or transaction, regardless of whether it has the characteristics typical of traditional securities like stocks or bonds.[6] The Howey analysis considers not only the form and terms of the instrument itself, but also the circumstances surrounding the instrument and the way it is offered, sold, or resold (including secondary market sales). The federal securities laws require all offers and sales of securities, including those involving digital assets that qualify as a security under the Howey test, to either be appropriately registered or to qualify for an exemption from registration. The registration provisions require registrants to disclose certain material information about the security, and the enterprise offering it, to investors.

Application to Cryptocurrency and Digital Assets

According to the Howey test, a decentralized cryptocurrency like bitcoin, which lacks both a common enterprise and the managerial efforts of others to affect its success, is likely not a security under the Securities Act.[7] Conversely, an initial coin offering for the illustrative “ABC Coin,” a new digital token promoted by the hardworking managers of ABC Corporation which promises investors a significant return from the successful launch and appreciation of the digital asset, could very likely qualify as a securities offering under the Howey test. In the ABC Coin example, the initial coin offering for ABC Coin may subject the digital asset and its promoters to the full sweep of registration requirements and regulations imposed by the federal securities laws.

Furthermore, any business that is primarily engaged in investing in or trading digital assets resembling ABC Coin may be deemed an investment company under the Investment Company Act of 1940, as amended, and would therefore be subjected to additional registration and regulatory requirements.[8] By extension, any person engaged in the business of advising others as to the value of or advisability of investing in, purchasing, or selling digital assets resembling ABC Coin may be considered an investment adviser under the Investment Advisers Act of 1940, as amended, and would likewise be subject to the relevant registration and regulatory requirements thereunder.[9]

Prospective investors in digital assets like cryptocurrencies should determine, among other things, whether the federal securities laws and the rules and regulations promulgated thereunder apply before making an investment. An investor that suffers a financial loss from a direct investment in bitcoin, which is likely not a security, would likely have no relief under the anti-fraud provisions that prohibit deceptive practices and misrepresentations in the purchase and sale of securities.[10] Meanwhile, an investor that is defrauded by the promoters of a digital asset resembling ABC Coin may have at least a theoretical remedy available under the anti-fraud provisions of the federal securities laws.

Recent Developments

On February 27, 2025, the SEC’s Division of Corporation Finance (the “Division”) stated that transactions in “meme coins,” digital assets inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading, do not involve the offer and sale of securities under the federal securities laws.[11] Accordingly, in the view of the Division’s staff at this point in time, persons who participate in the offer and sale of meme coins need not register their transactions under the Securities Act or fall within one of the Securities Act’s exemptions from registration and neither meme coin purchasers nor holders would be protected by the federal securities laws.

In an address on May 12, 2025, Chair Paul Atkins outlined the SEC’s goal of developing a comprehensive regulatory framework for digital asset markets.[12] Chair Atkins indicated that the new framework would establish clear guidelines around the issuance, custody and trading of digital assets while maintaining investor protection against fraud and manipulation. Chair Atkins criticized the SEC’s failure to adapt registration statement forms and other disclosures to digital assets and committed to establishing clear guidelines for such assets that are securities or subject to an investment contract and exploring new exemptions and safe harbors to registration requirements.

In a statement on July 1, 2025, the Division opined on the application of certain disclosure requirements under the federal securities laws to offerings and registrations of securities by issuers of crypto asset exchange-traded products (“crypto asset ETPs”).[13] According to the Division, crypto asset ETP trusts are issuers of securities that must register their offerings under the Securities Act and the Securities Exchange Act of 1934, as amended, respectively, and issuers of crypto asset ETPs are subject to the anti-fraud provisions of the federal securities laws. However, the Division did not fully resolve the question of whether crypto asset ETPs need to register as investment companies under the Investment Company Act of 1940.

On July 18, 2025, the Guiding and Establishing National Innovations for U.S. Stablecoins Act (the “GENIUS Act”) was signed into law by President Trump.[14] The GENIUS Act amends the federal securities laws and related legislation to establish that a payment stablecoin is expressly not a security, leaving the federal regulation of payment stablecoins to banking regulators. For further details regarding the GENIUS Act and stablecoin regulation, please refer to The GENIUS Act of 2025: The First Federal Legislation for the Regulation of Payment Stablecoins.

Further developments in federal securities regulation concerning cryptocurrency and digital assets are expected. Readers are encouraged to contact Matthew Bertelli at  mbertelli@apslaw.com or (401)427-6218 for more information regarding the federal securities laws generally and their application to cryptocurrency and digital assets.

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[1] The terms “digital asset” and “crypto asset,” as used in this blog post, refer to assets that are issued and transferred using distributed ledger or blockchain technology, including “virtual currencies,” “coins,” and “tokens.”

[2] SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force, SEC (Jan.

21, 2025), https://www.sec.gov/newsroom/press-releases/2025-30.

[3] Strengthening American Leadership in Digital Financial Technology, The White House (Jan. 23, 2025), https://www.whitehouse.gov/presidential-actions/2025/01/strengthening-american-leadership-in-digital-financial-technology/.

[4] See 15 U.S.C. § 77b(a)(1).

[5] See SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (“Howey”). See also United Hous. Found., Inc. v. Forman, 421 U.S. 837 (1975); Tcherepnin v. Knight, 389 U.S. 332 (1967); SEC v. C. M. Joiner Leasing Corp., 320 U.S. 344 (1943).

[6] Whether a contract, scheme, or transaction is an investment contract is a matter of federal (not state) law and does not turn on whether an enforceable contract exists between parties. Rather, under the Howey test, “form [is] disregarded for substance and the emphasis [is] on economic reality.” Howey, 328 U.S. at 298. The Supreme Court has further explained that the term security “embodies a flexible rather than a static principle” in order to meet the “variable schemes devised by those who seek the use of the money of others on the promise of profits.” Id. at 299.

[7] See Framework for ‘Investment Contract’ Analysis of Digital Assets, available at https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets.

[8] See 15 U.S.C. § 80a-3(a)(1).

[9] See 15 U.S.C. § 80b-2(a)(11).

[10] See e.g., 15 U.S.C. § 77q(a);15 U.S.C. § 78j. See also 17 C.F.R. 240.10b-5.

[11] Staff Statement on Meme Coins, Div. of Corp. Fin., SEC (Feb. 27, 2025), https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins. The statement represents the views of the staff of the Division and is not a rule, regulation, guidance, or statement of the SEC, and the SEC has neither approved nor disapproved its content. The statement, like all staff statements, has no legal force or effect; it does not alter or amend applicable law, and it creates no new or additional obligations for any person. However, staff statements may indicate the SEC’s future position regarding any official investigation or enforcement action.

[12] Paul S. Atkins, Keynote Address at the Crypto Task Force Roundtable on Tokenization, SEC (May 12, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-remarks-crypto-roundtable-tokenization-051225-keynote-address-crypto-task-force-roundtable-tokenization.

[13] Crypto Asset Exchange-Traded Products, Div. of Corp. Fin., SEC (July 1, 2025), https://www.sec.gov/newsroom/speeches-statements/cf-crypto-asset-exchange-traded-products-070125. Crypto asset ETPs are investment products that are listed and traded on national securities exchanges and typically structured as trusts that hold assets, which consist of spot crypto assets or derivative instruments that reference crypto assets.

[14] Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), S. 1582, 119th Cong. (2025)