The Securities and Exchange Commission, also known as the SEC, is the U.S. Government body responsible for enforcing security legislation in America. It regulates the security industries such as stock and options exchanges, but there’s a bit of a catch as far as SEC regulations on crypto go.
Impact of SEC on Cryptocurrency
The SEC oversees several aspects of cryptocurrency firms active in the U.S. — ensuring those are compliant with the existing regulations. Also, the Commission is capable of updating and creating new regulations in order to adapt to the new technology seen in crypto.
As the enforcing regulatory administrator of the largest economy in the world — the SEC also serves as a standard for other nations to apply similar regulations, which causes its influence to expand over the U.S. borders making it the the most important regulatory agency worldwide.
SEC Stance on Crypto Trading
Up until now, the Commission under Gary Gensler’s rule classified digital assets not named Bitcoin as securities. This means that digital assets like XRP and Ethereum should comply with security laws similar to those of traditional stocks and bonds. This includes registration requirements, disclosures, and regulatory oversight.
The methodology used to classify these currencies as securities is a test known as the “Howey Test”. The test is a methodology performed at a Supreme Court Case in 1946 that determines whether a financial transaction should be classified as an “investment contract”.
Howey tests consist of four questions that are used to determine if a transaction is indeed an investment contract (and therefore a security):
1. Investment of Money: Is there money or valuable assets involved in the transaction?
2. Common Enterprise: Is the investment coming from a common enterprise?
3. Expectation of Profits: Are involved parties expecting profits from the transaction?
4. Efforts of Others: Are the profits expected to come primarily from the efforts of others?
If the answer to all four questions is “yes”, then according to the Howey Test, the transaction should be classified as an investment contract, classifying it as security.
Pretty simple right? Well, not exactly. The intricacies of crypto assets make it difficult for the test to set in stone a decision or other. For instance, while XRP certainly requires money and the efforts of others to grow — some believe that its decentralized nature means Ripple is not the main responsible actor to classify as a “common enterprise”, and also that expectation of profits is not the primary concern once the currency may be used for cross-border transactions.
Security Laws and Cryptocurrency
American security laws play a pivotal role in regulating the trade, offer, issuance, and sale of financial assets. The goal of these activities is to protect investors while maintaining the integrity of the market.
The growing popularity of cryptocurrencies led the SEC to extend its reach to regulate digital assets if said assets meet the criteria to be classified as securities. Also, the commission supervises the activity of cryptocurrency firms in the U.S., including oversight over initial coin offerings, cryptocurrency exchanges and brokers, DeFi projects, and custody services.
This means that in order to operate in the United States, firms have to register and comply with the SEC’s regulations.
SEC Enforcement in Cryptocurrency
In recent times, SEC has actively pursued enforcement actions in the crypto industry — aiming to create a safer environment for investors in the digital realm. Whether former SEC Chair Gary Gensler’s actions were right is debatable — nonetheless — the last three years have marked the most action taken by the SEC regarding the crypto market.
Crypto Market and SEC Policies
The Commission ensures that crypto firms are compliant with U.S. security laws to protect investors. Such policies include asset or firm registrations, anti-fraud steps, audits, and market manipulation monitoring. In order to legally operate in America, crypto firms must follow these steps and adhere to its regulatory guidelines.
How SEC Rules Affect Crypto Exchanges
This topic became of major importance after the FTX meltdown in 2022. At the time, the news of a multi-billion dollar exchange using customer funds without their knowledge while operating in the U.S. was a heavy hit to the crypto market as its credibility and investor’s trust went down alongside the bankrupt exchange.
Since then, the SEC has taken a more aggressive stance by enforcing compliance with security laws. This includes going after major crypto firms like Kraken, Binance, and Coinbase. The bulk of the lawsuits administered by the Commission consisted of charging firms for offering unregistered securities for sale, or for operating as an unregistered security exchange.
Crypto Compliance With SEC Guidelines
These turbulent times led cryptocurrency firms to do their best to adhere to SEC guidelines. The largest exchange in America, Coinbase, has done its best to register with the Commission and improve its compliance measures. Similarly, Kraken has adjusted its staking program to comply with the regulatory framework.
Moreover, these events highlight the extreme influence the Securities and Exchange Commission holds over the market. Despite the dispute between crypto and the SEC being far from over, many cryptocurrency firms are taking significant steps to ensure compliance.
Ripple SEC Lawsuit Impact
The lawsuit on Ripple is arguably the most notorious case involving crypto firms and the SEC in history. While there are signs that the case may be heading toward a conclusion in 2025 — the influence it had over XRP and all other altcoins serves as a reminder that while the market is decentralized, centralized bodies like the Commission still hold great leverage.
In 2020, the Securities and Exchange Commission sued Ripple Labs accusing the company and its executives of promoting and offering the sales of an unregistered security (XRP). At the time it took less than a week for cryptocurrency exchanges like Coinbase to delist the altcoin in fear of suffering repercussions from the Commission.
The SEC argued in the lawsuit that according to the Howey Test, XRP should be classified as a security and should fall under its jurisdiction. This led to XRP becoming extremely undervalued — losing over 50% in value in just a couple of weeks after the case was made public.
It was only 3 years later that Ripple Labs would get a minor, but very important victory. In July 2023, New York Judge Anelisa Torres ruled that XRP should not be considered a security according to the Howey Test, but she did fine the company and its top executives Brad Garlinghouse and Chris Larsen for their institutional sales of XRP.
SEC Crypto Regulations 2025
The Securities and Exchange Commission is apparently taking a significant shift in 2025, when compared to the previous administration.
During the previous years, the SEC was seen as largely combative when it comes to cryptocurrencies, often adopting a “shoot first ask questions later” kind of approach by jumping straight into lawsuits rather than working alongside the industry to create a clearer regulatory framework.
However, after Donald Trump took office on January 20, 2025 — the SEC is already looking more approachable, at least during its first few days. In less than a week since the government shift, the new SEC spearheaded by Acting Chair Mark Uyeda has already delivered a crypto task force to work on creating fair regulations.
Uyeda has also revised some of Gensler’s most debatable decisions. On January 25, the Republican lifted the SAB 121 rule that prevented banks from offering bitcoin custody services.
Future of Crypto Under SEC Regulation
With the new administration under Acting Chair Mark Uyeda, the SEC is showing a more balanced approach, aiming for clear and fair regulations. Later in the year Paul Atkins —another pro-crypto voice in the industry — is expected to take the role of SEC Chair.
Expectations are high for what the new SEC will be able to achieve under the Trump administration. While it is still very early to say, the new government’s agenda, like its intention of creating a Bitcoin Strategic Reserve promises to coincide with what it looks like will be a more approachable Securities and Exchange Commission.
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