Will the SEC’s Interpretation Lead to Further Expansion of Crypto Asset Trading in the US? 

Crypto Clarity: The Application of Federal Securities Laws to Crypto Assets

On March 17, 2026, the Securities and Exchange Commission (SEC) issued an interpretative release (the Interpretation) clarifying how federal securities laws apply to crypto assets and transactions involving crypto assets and trading platforms.¹ The Commodity Futures Trading Commission (CFTC) also joined the Interpretation and stated that it will administer the Commodity Exchange Act (CEA) consistent with the SEC’s Interpretation. 

The Interpretation defined a crypto asset taxonomy, clarified how the SEC would apply the definition of “security” or “investment contract” to these assets, and described how federal securities laws applied to activities such as airdrops, protocol mining, protocol staking, and wrapping. For market participants, the Interpretation provides more transparency on the jurisdictional lines between the SEC and the CFTC with regard to crypto assets and activities. Both agencies view the Interpretation as the path to “fostering a regulatory environment that allows the crypto industry to flourish in the United States” and to complement Congressional efforts to codify a market structure framework.²

In our recent article on the CFTC–SEC regulatory harmonization efforts,³ we noted that both the SEC and CFTC chairmen recognized the need for improved regulation and partnership between the agencies to appropriately serve the rapidly changing markets and to ensure that the US remains a leader in digital asset innovation and adoption. We also discussed Chairman Selig’s call for a clearer taxonomy that would allow market participants to better determine agency jurisdiction and his praise of Chairman Atkin’s draft crypto asset taxonomy. With the Interpretation’s release, the SEC and CFTC have shown that they are committed to taking actionable, harmonized steps to continue promoting the expansion of the crypto assets market in the US. 

While the Interpretation is not formal rulemaking, it provides the agencies’ current views about the classification of digital assets. The Interpretation and the taxonomy are based on the SEC’s present understanding of crypto markets. The SEC is soliciting public comments on the Interpretation and may refine or revise it for additional clarity based on the feedback it receives.⁴ Although the guidance provided in the SEC’s Interpretation is a positive step forward in improving clarity for the crypto asset market and its participants, Congress must pass market structure legislation to ensure more permanence for the regulators’ stance on crypto assets. 

Crypto Asset Taxonomy

The SEC’s Interpretation set forth a taxonomy that classifies crypto assets into one of five categories, while noting that there may be crypto assets that do not fall within any category or hybrid crypto assets that could fall within multiple categories: 

• Digital Commodities: Digital commodities, including assets such as Bitcoin (BTC), Solana (SOL), XRP (XRP), and Ethereum (ETH) derive value from the operation of the crypto systems and supply and demand, rather than the expectation of profit from the managerial efforts of others. They do not have intrinsic economic properties or rights. Digital commodities are not securities.
• Digital Collectibles: Digital collectibles are crypto assets designed to be collected or used and may represent the rights to artwork, music, trading cards, or internet memes. Purchasers do not have a legal right or interest in a business enterprise. Although creators may impact the value of a digital collectible, they do not make representations about managerial efforts from which a purchaser would reasonably expect to derive profits. Generally, digital collectibles are not securities.⁵
• Digital Tools: Digital tools perform a practical function and may, for example, represent a membership, a ticket, or an identity badge. Digital tools are purchased based on functional utility, and purchasers do not have a right or interest in a business enterprise. Like digital collectibles, a creator can impact a digital tool’s value, but purchasers would not expect to derive profit from their managerial efforts. Generally, digital tools are not securities. 
• Stablecoins: Stablecoins are crypto assets that are designed to maintain a stable value relative to a reference asset, such as the US dollar. The GENIUS Act states that “payment stablecoins” issued by a permitted payment stablecoin issuer are not securities, and the SEC has adopted this view. 
• Digital or Tokenized Securities: Digital securities represent real-world assets or financial instruments that are formatted as crypto assets, where the record of ownership is maintained in whole or in part through crypto networks. The SEC clarifies that instruments displaying the economic characteristics of a security are securities regardless of the label or format, including being listed on-chain or off-chain. Digital securities fall within the definition of a security, which includes stocks, bonds, notes, investment contracts, and other instruments. 

The SEC also stated that the “Howey test” should be applied to determine whether crypto assets are investment contracts and therefore securities under federal securities laws.^6,7 The SEC acknowledged that applying the Howey test to crypto assets can be “challenging” because of the “varying degrees of control that persons . . . may have over crypto systems, the diversity of the types of crypto assets with varying characteristics, uses, and functionality, and the evolving nature of crypto assets.”⁸

Investment Contracts and Non-Security Crypto Assets

The SEC also included guidance on when a non-security crypto asset may become subject to an investment contract under federal securities law. The Interpretation states, “[H]ow an issuer markets and promotes a contract, transaction, or scheme is relevant to assessing whether the issuer is offering or selling an investment contract.”⁹ A non-security crypto asset may become subject to an investment contract when it satisfies the components of the Howey test—"an issuer offers the asset by encouraging a monetary investment in a common enterprise with representations or promises to undertake managerial efforts from which a purchaser would reasonably expect to derive profits.”¹⁰ Whether an expectation of profits based on managerial efforts is reasonable can depend on the source of any representations made (e.g., directly from the issuer), timing (e.g., before or at the time of offer), and manner (e.g., regulatory filings of the issuer). The details of an issuer’s representations about managerial efforts should also be considered; for example, a business plan with a timeline, milestones, and funding sources may create a reasonable expectation of profit.

However, the SEC noted that “[t]he fact that a non-security crypto asset is subject to an investment contract does not transform the non-security crypto asset itself into a security.”¹¹ A determining factor is whether a purchaser would reasonably expect representations to remain connected to the non-security crypto asset in secondary market transactions. If a non-security crypto asset remains subject to the investment contract, secondary market offers and sales would be securities transactions, which must be registered or fall under an exemption to be compliant with federal securities laws. 

The SEC also clarified that although a non-security crypto asset can be offered and sold subject to an investment contract, it does not remain subject to the investment contract in perpetuity. When a purchaser of a non-security crypto asset that has become subject to an investment contract can no longer reasonably expect the issuer’s representations regarding managerial efforts to remain connected to that asset, it is no longer subject to securities laws. For example, if the issuer fulfills a promise or, alternatively, if it becomes clear that the issuer will fail to meet its promise, then the non-security crypto asset would no longer be subject to the investment contract.

The SEC notes that where an issuer fails to perform the managerial efforts it represented or promised in connection with an investment contract, it may face liability under federal securities laws, including liability under anti-fraud provisions for any material misstatements or omissions. 

Application of Federal Securities Laws to Crypto Asset Activities

Protocol Mining and Protocol Staking

The Interpretation also explains the agency’s understanding of protocol mining and protocol staking and states that these activities are administrative or ministerial acts, which do not involve the offer or sale of securities. Both are necessary activities in the consensus mechanisms that enable crypto networks to verify transactions, provide settlement assurance, and generate new blocks in the blockchain. The SEC’s Interpretation applies to both solo mining/staking and pooled mining/staking.¹²

The SEC clarified that other ancillary services provided in connection with protocol staking such as slashing coverage, early unbonding, alternate reward payment schedules and amounts, and aggregation of digital commodities are all administrative or ministerial in nature. 

Wrapping

The SEC concluded that the process of “wrapping” crypto assets to create “Redeemable Wrapped Tokens” is an administrative or ministerial function and does not constitute the offer or sale of a security. Redeemable Wrapped Tokens are tokens that mirror the value of a crypto asset from a different blockchain and allow a token that is native to one blockchain to be used on another blockchain. For example, a Wrapped Bitcoin (wBTC) is a token on the Ethereum blockchain that mirrors the value of a Bitcoin. To wrap a crypto asset, a person first deposits the crypto asset with a custodian or cross-chain bridge who commits the asset to its secure storage. The custodian then mints an equivalent amount of Redeemable Wrapped Tokens on a one-for-one basis that can be used on a different blockchain. 

The SEC clarified that the logic outlined in the taxonomy also applies to the offer or sale of wrapped tokens. The offer or sale of a Redeemable Wrapped Token that is the receipt of a non-security asset that is not subject to an investment contract does not involve the offer or sale of a security. On the other hand, the offer or sale of a Redeemable Wrapped Token that is a receipt for a digital security, or a non-security crypto asset that is subject to an investment contract, constitutes the offer or sale of a security. 

Airdrops

The Interpretation also states that “airdrops” for non-security crypto assets where the recipients do not provide an issuer with money, goods, services, or other consideration in exchange are not the offer or sales of securities.¹³ Airdrops can be used by issuers to transfer crypto assets to wallets. Issuers, typically in the early development stage, may airdrop assets to customers to generate interest, expand ownership, reward users, or promote software. 

How A&M Can Help

Crypto market participants need to keep abreast of the rapidly shifting regulatory landscape and impending changes in market structure and be prepared to adapt their compliance and supervision programs accordingly.

Our team has the expertise to help your firm in understanding key SEC and CFTC rule changes and implementing necessary enhancements to compliance, operational, and risk frameworks, as well as provide support for dispute and litigation matters. 

A&M has extensive experience working with all major US regulatory agencies and is well-positioned to provide tailored, risk-based solutions for clients across different sectors of the financial services industry.

Our Services

• Investigation support and market analysis
• Dispute services and expert testimony
• Regulatory change management guidance and implementation 
• Compliance program evaluations
• Risk assessments
• Control testing
• Surveillance program review and remediation
• Systems calibration and enhancement
• Regulatory data reporting 
• Data governance, mapping, and validation

Learn More About A&M Disputes and Investigations Offerings 

1. ^ Securities and Exchange Commission, “SEC Clarifies the Application of Federal Securities Laws to Crypto Assets,” March 17, 2026. The full text of the SEC’s Interpretation can be found in the Federal Register. 91 Fed. Reg. 13714 (March 23, 2026). 
2. ^ Securities and Exchange Commission, “SEC Clarifies the Application of Federal Securities Laws to Crypto Assets,” March 17, 2026. 
3. ^ Jeremy Cusimano et al., “CFTC and SEC Regulatory Harmonization: Delivering US Financial Leadership in Crypto Markets and Beyond,” Alvarez & Marsal, February 13, 2026.
4. ^ Submitted comments can be found on the SEC’s website at https://www.sec.gov/rules-regulations/public-comments/s7-2026-09. 
5. ^ The Interpretation acknowledges that if there was an offer or sale of a digital collectible that allowed an individual to acquire a fractional ownership interest in a single collectible, this could constitute the offer or sale of a security. 
6. ^ The Howey test has long been used as precedent for determining whether something is an investment contract, thus subject to SEC rules. Elements of the Howey test include “(1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits derived from the efforts of others.” 91 Fed. Reg. 13714, 13715, n. 7. The Interpretation also refers to the “efforts of others” element in the Howey test as “essential managerial efforts.”’
7. ^ The Interpretation supersedes the SEC’s 2019 “Framework for ‘Investment Contract’ Analysis of Digital Assets,” which has been withdrawn in light of the updated guidance on the Howey test’s application to crypto assets. 
8. ^ 91 Fed. Reg. 13714, 13715. 
9. ^ 91 Fed. Reg. 13714, 13721.
10. ^ 91 Fed. Reg. 13714, 13721.
11. ^ 91 Fed. Reg. 13714, 13722.
12. ^ The Interpretation specifies that it applies only to “covered” protocol mining and staking activities, as defined therein.
13. ^ The Interpretation specifies that it does not address airdrops of digital securities, nor does it apply to airdrops of non-security crypto assets where the recipient has provided some form of consideration in exchange for the airdropped asset.