"If you're tired of hearing the question, 'Are crypto assets securities?', I completely understand." On November 12th, Paul Atkins, Chairman of the U.S. Securities and Exchange Commission (SEC), opened a new era of crypto asset regulation with this pointed statement at the Federal Reserve Bank of Philadelphia Fintech Conference. He officially announced that the SEC would establish a four-category token classification system based on the Howe Test—the clearest and most systematic statement from a U.S. regulator regarding the crypto asset sector. After a decade of regulatory ambiguity and market controversy, the SEC's clear stance not only provides a predictable regulatory framework for the trillion-dollar crypto market but also indicates that the U.S. is making every effort to regain its leadership in digital financial innovation. Say Goodbye to Regulatory Fog The term "crypto-asset" has never been defined in federal securities law; it merely describes the technological methods of record-keeping and value transfer. For the past decade, the crypto market has been navigating a regulatory gray area. The jurisdictional dispute between the SEC and the Commodity Futures Trading Commission (CFTC) has left industry participants mired in endless confusion. Atkins bluntly points out that "past regulatory practices were neither sustainable nor practical." This regulatory uncertainty has already resulted in substantial business losses. He admits that a vague regulatory stance "is unfair to market participants and investors, inconsistent with the spirit of the law, and has led to the offshore migration of entrepreneurs." "The reality is that if the U.S. insists that every innovation on a token chain navigate the minefield of securities laws, these innovations will be transferred to jurisdictions more willing to differentiate between asset types and more willing to establish rules in advance." The SEC's proposed token classification system divides digital assets into four distinct categories. This framework is based on months of roundtable discussions, over a hundred meetings with market participants, and hundreds of public comments. 01 Digital Goods or Network Tokens The value of these tokens derives from the programmatic operation of a "fully functional" and "decentralized" encrypted system, rather than from profit expectations arising from the critical management work of others. Atkins explicitly stated that, in his view, these tokens do not fall under the category of securities. This provides a clear regulatory definition for major cryptocurrencies such as Bitcoin and Ethereum. 02. Digital Collectibles This includes tokens representing artwork, music, videos, trading cards, in-game items, or internet memes. Buyers of these assets primarily intend to collect and use them, rather than profit from the administrative efforts of others. The SEC's explicit exclusion of these digital collectibles from the definition of securities provides much-needed regulatory certainty to the NFT market.
03 Digital Instruments
This includes tokens with practical functionality, such as memberships, tickets, credentials, proof of ownership, or identity badges.
These utility tokens are focused on specific uses rather than investment purposes and are therefore excluded from the scope of securities. Purchasers do not expect to profit from the day-to-day management of others.
04 Tokenized Securities
Tokens representing ownership of traditional financial instruments will still be defined as securities.
Atkins emphasizes: "A stock's nature as a stock doesn't change whether it's represented by a paper certificate, a DTCC account record, or a blockchain token. Similarly, a bond doesn't cease to be a bond simply because it uses smart contracts to track payment flows." The SEC's revolutionary breakthrough lies in acknowledging that the regulatory status of tokens can change over time, a view that addresses a core issue that has long plagued the industry. In the 1940s, the U.S. Supreme Court established the famous Howey Test—the four-factor standard for determining whether a transaction constitutes a security—in the SEC v. Florida citrus developer William J. Howey. Howey's company in the case sold citrus orchard land. Land itself is not a security, but due to the accompanying arrangement of "planting and selling on behalf of others, profit sharing," it is considered an investment contract. Atkins, using this case as an analogy, points out that "the land surrounding Howey's mansion was never a security in itself; it became the subject of an investment contract through a specific arrangement, and when that arrangement terminated, it was no longer bound by the investment contract." "A token doesn't remain a security forever just because it was once part of an investment contract transaction, just as a golf course doesn't become a security just because it was once part of a citrus orchard land investment plan." This framework acknowledges that as networks mature, code becomes more sophisticated, and control is decentralized, the issuer's role diminishes or even disappears. At some point, buyers no longer rely on the issuer's core management efforts. Coordinating with Congressional Legislation
This action by the SEC echoes congressional legislative efforts. Atkins stated explicitly, "I fully support Congress's efforts to codify a comprehensive cryptocurrency market structure framework into law."
Just before this speech, the Senate Agriculture Committee released a new bipartisan draft proposal outlining anticipated changes to the regulation of the U.S. digital asset market.
This draft gives the CFTC and SEC more clearly defined roles and establishes a new process allowing issuers to demonstrate that digital assets qualify as commodities.
In terms of regulatory division, the SEC will retain jurisdiction over tokenized securities, while the CFTC will have primary jurisdiction over digital commodities.
The market impact is far-reaching. This regulatory clarity is expected to reshape the cryptocurrency market landscape. Institutional investors, long hesitant due to regulatory uncertainty, may now enter the space on a large scale. Atkins also supports the concept of "super apps"—platforms that allow custody and trading of multiple asset classes under a single regulatory license. This foreshadows a future where digital asset trading and management will be more convenient. For investors, the new framework significantly reduces compliance risks for non-security tokens while maintaining investor protection for security tokens. However, Atkins also solemnly warns that the new framework "is by no means a signal of relaxed enforcement," and fraud and market manipulation will still face the most severe accountability. The era of "clarity" in US crypto regulation is dawning. With the SEC's classification framework and the congressional legislative process proceeding in parallel, the market will move beyond the "one-size-fits-all" regulatory predicament of the past decade. As Atkins stated, "In a free society, the rules governing economic life should be knowable, reasonable, and appropriately constrained." This reflects the shared expectation of global crypto market participants. The new regulatory framework not only creates safe zones for innovation but also declares to the world that the US intends to regain leadership in digital financial innovation while ensuring market integrity.
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