By Liam Murphy, Esq. | Murphy’s Law: The Crypto Law Firm
For years, the cryptocurrency industry operated under a cloud of regulatory uncertainty. The SEC refused to publish clear rules, choosing instead to regulate by enforcement. Crypto companies, investors, and developers were left guessing which tokens were securities, which platforms needed to register, and which activities could trigger a lawsuit from federal regulators.
That era is over.
In 2025 and early 2026, the U.S. government overhauled its approach to crypto regulation. The SEC launched Project Crypto, a Commission-wide initiative to create a comprehensive framework for digital assets. The GENIUS Act became the first federal stablecoin law. The CLARITY Act passed the House. And on March 17, 2026, the SEC and CFTC jointly issued a landmark interpretive release that, for the first time, drew clear lines between which crypto assets are securities and which are not.
Whether you are a crypto investor, a token project founder, a DeFi builder, or a business exploring blockchain technology, understanding these regulations is no longer optional. This guide breaks down the current state of SEC crypto regulation, what the new rules mean for you, and what to expect as the framework continues to evolve.
The Shift: From Enforcement to Framework
To understand where crypto regulation stands today, it helps to understand how dramatically things changed in 2025.
Under the prior administration, the SEC took an aggressive enforcement-first approach. The agency filed lawsuits against major exchanges, token issuers, and DeFi protocols, arguing that most crypto assets qualified as securities under the Howey test, a legal framework from a 1946 Supreme Court case. The problem was that the SEC never published formal rules explaining how the Howey test applied to specific types of crypto assets. Companies were sued for violations of rules that had never been clearly articulated.
The new administration reversed course almost immediately. In January 2025, SEC Acting Chairman Uyeda launched the Crypto Task Force, led by Commissioner Hester Peirce, with a mandate to develop clear regulatory guidelines. The SEC dropped or paused the majority of its crypto enforcement cases from the prior era, with over 60% of actions either dismissed, settled on reduced terms, or abandoned entirely. The DOJ disbanded its National Cryptocurrency Enforcement Team, signaling a shift away from using criminal prosecution as a regulatory tool.
In place of enforcement actions, the SEC began publishing staff statements, no-action letters, and interpretive guidance covering stablecoins, meme coins, proof-of-work mining, proof-of-stake staking, custody requirements, and broker-dealer definitions. The CFTC launched a parallel “Crypto Sprint” initiative focused on digital commodity oversight.
The culmination of this work arrived on March 17, 2026, when the SEC and CFTC issued a joint 68-page interpretive release that replaced the SEC’s 2019 staff framework and, for the first time, provided a coherent taxonomy for classifying crypto assets.
The New Token Taxonomy: How Crypto Assets Are Now Classified
The March 2026 SEC/CFTC joint interpretation established five categories for crypto assets. Understanding these categories is essential for anyone operating in the crypto space.
1. Digital Commodities
Crypto assets whose value derives from the operation of a functional blockchain system and supply-and-demand dynamics, rather than from expectations of profit tied to the efforts of others. Bitcoin, Ethereum, Solana, XRP, and 12 additional major cryptocurrencies are now officially classified as digital commodities. These assets fall under CFTC oversight, not the SEC’s securities framework, resulting in a lighter regulatory burden for spot markets.
2. Digital Securities (Tokenized Securities)
Traditional securities (stocks, bonds, fund shares) that have been formatted as or represented by crypto tokens. These remain fully subject to SEC regulation, including registration, disclosure, and compliance requirements. The SEC has encouraged tokenization of traditional assets and approved pilot programs, including a three-year tokenization pilot by the Depository Trust Company.
3. Stablecoins
Crypto assets designed to maintain a stable value relative to a reference asset like the U.S. dollar. The GENIUS Act, signed into law on July 18, 2025, established a comprehensive federal regulatory framework for payment stablecoins. Under this law, compliant stablecoins issued by permitted issuers are excluded from the definitions of both “security” and “commodity,” placing them in their own regulatory category. Issuers must maintain 1:1 reserve backing with liquid assets, comply with anti-money laundering requirements, and publish monthly reserve disclosures.
4. Digital Collectibles (Including Meme Coins)
Crypto assets driven primarily by community sentiment, cultural significance, or entertainment value rather than expectations of profit from managerial efforts. The SEC issued guidance in February 2025 stating that meme coins purchased for entertainment or cultural purposes generally do not involve the offer and sale of securities.
5. Digital Tools and Utility Tokens
Crypto assets that serve a functional purpose within a blockchain ecosystem, such as governance tokens or tokens that provide access to specific services. These may not be securities if their value is not tied to the expectation of profit from the efforts of others.
The Howey Test Still Applies
The Howey test remains the legal standard for determining whether a crypto asset is a security. Under this test, an asset is a security if it involves (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profit, (4) derived from the efforts of others. However, the new framework introduces an important principle: investment contracts can end. When a project fulfills its development promises and becomes fully decentralized, the token may transition out of securities classification, even if it was originally sold as part of an investment contract.
Key Legislation: The GENIUS Act and the CLARITY Act
The GENIUS Act (Signed Into Law July 18, 2025)
The Guiding and Establishing National Innovation for U.S. Stablecoins Act is the first comprehensive federal stablecoin law. Key provisions include:
- Only permitted issuers may issue payment stablecoins for use by U.S. persons. Permitted issuers must be subsidiaries of insured depository institutions, federally qualified nonbank issuers, or state-qualified issuers.
- 1:1 reserve backing required with U.S. dollars, short-term treasuries, or other approved liquid assets. Reserves may not be rehypothecated.
- Monthly reserve disclosure on the issuer’s website, examined by a registered public accounting firm.
- Stablecoin issuers are treated as financial institutions under the Bank Secrecy Act, requiring comprehensive AML/KYC programs, sanctions screening, and suspicious activity reporting.
- Stablecoin holders receive first priority over all other creditors in the event of issuer insolvency.
- No interest or yield may be paid to holders solely for holding or using a payment stablecoin.
- Non-financial public companies are generally prohibited from issuing stablecoins.
- Foreign issuers must register with the OCC and hold U.S.-based reserves to issue stablecoins for U.S. customers.
The CLARITY Act (Passed the House July 2025, Awaiting Senate Action)
The Digital Asset Market Clarity Act distinguishes “digital commodities” from securities and grants the CFTC primary authority over spot digital commodity markets. Key elements include:
- Defines “digital commodity” as a category separate from securities, providing a clear legal classification for assets like Bitcoin and Ethereum.
- Establishes a registration regime for digital commodity exchanges, brokers, and dealers under CFTC oversight.
- Requires SEC and CFTC coordination on rulemaking to prevent regulatory gaps and duplicative requirements.
- Includes consumer protections such as fund segregation, conflict-of-interest safeguards, and disclosure requirements.
- Protects self-custody rights, affirming that individuals may hold their own digital assets without intermediary requirements.
The CLARITY Act is awaiting Senate action. A bipartisan Senate Agriculture Committee discussion draft, led by Senators John Boozman and Cory Booker, proposes similar CFTC authority expansions and is expected to form the basis for a Senate companion bill.
SEC Project Crypto: What Is Coming Next
SEC Chairman Paul Atkins announced Project Crypto in 2025 as the Commission’s roadmap for building a durable crypto regulatory framework. The initiative has already produced significant guidance, but more is on the horizon.
- Regulation Crypto: The SEC plans to propose formal rules in 2026 that would establish tailored disclosure requirements, exemptions, and safe harbors for digital asset distributions.
- Exchange amendments: Proposed rules would amend the Securities Exchange Act of 1934 to accommodate crypto trading on traditional exchanges and alternative trading systems.
- Innovation exemption: A framework allowing companies to test new business models under principles-based safeguards rather than full compliance with existing securities rules.
- “Super-app” registration: A single license regime enabling market participants to engage in custody, trading, and other regulated activities for multiple asset classes under one registration.
- Tokenized securities guidance: Detailed rules on how tokenized versions of traditional securities should be issued, traded, and custodied.
What This Means for Crypto Investors
If you hold, trade, or invest in cryptocurrency, the new regulatory landscape affects you in several important ways.
Greater Legal Clarity
For the first time, you can determine with reasonable certainty whether a crypto asset you hold is classified as a digital commodity, a digital security, a stablecoin, or a collectible. This classification determines which regulatory protections apply and which agency oversees the market for that asset.
Stronger Consumer Protections
The GENIUS Act’s stablecoin framework, the CLARITY Act’s fund segregation requirements, and the SEC’s enhanced custody rules all provide investors with protections that did not exist before. Stablecoin holders now have first-priority claims in bankruptcy, and digital commodity exchanges will face registration and compliance obligations designed to prevent the kind of collapses seen with FTX, Celsius, and Voyager.
Fraud Remains a Serious Risk
Regulatory clarity does not eliminate fraud. The FBI reported $9.3 billion in crypto fraud losses in 2024, a 66% increase over the prior year. Pig butchering scams, Ponzi schemes, rug pulls, and fake exchange platforms continue to target investors. The DOJ has refocused its crypto enforcement resources on prosecuting actual fraud, terrorism financing, and sanctions evasion rather than regulatory gray-area violations.
Tax and Compliance Obligations Continue
The IRS has intensified its focus on cryptocurrency reporting. Regardless of how a token is classified under securities law, all crypto transactions are potentially taxable events. Staking rewards, airdrop income, and capital gains from trading all carry reporting obligations. The new regulations do not change your tax responsibilities.
What This Means for Crypto Businesses
If you are building, operating, or advising a crypto business, the regulatory changes create both opportunities and obligations.
Token Classification Is Now Your Responsibility
Under the new framework, every token project must conduct a legal analysis to determine which of the five categories its token falls into. Detailed business plans with milestones and profit expectations may trigger securities classification. Projects that have fulfilled their development goals should publicly announce completion to support the argument that any investment contract has terminated.
Compliance Programs Are Essential
Whether you operate as a digital commodity exchange, a stablecoin issuer, a DeFi protocol, or an NFT marketplace, compliance with the applicable regulatory framework is no longer optional. AML/KYC programs, sanctions screening, custody arrangements, and disclosure obligations apply based on the type of assets and services involved.
Regulatory Defense Requires Specialized Counsel
Even in a more permissive regulatory environment, investigations and enforcement actions continue. The SEC’s replacement of its Crypto Asset Cyber Unit with the Cyber and Emerging Technologies Unit (CETU) refocused enforcement on retail investor protection and cyber misconduct. If your business receives a subpoena, a Wells notice, or an inquiry from any federal or state regulator, having a crypto lawyer who understands both the technology and the regulatory framework is critical.
How Murphy’s Law Can Help
Murphy’s Law is a first-of-its-kind crypto law firm founded by Liam Murphy, Esq., a University of Pennsylvania Law School graduate who spent years as a litigation associate at three prominent New York City law firms before dedicating his practice entirely to cryptocurrency law.
At Paul Hastings, Liam defended DeFi and NFT companies from government scrutiny and aided three white-collar defense acquittals. At Selendy Gay, he drafted complaints against crypto fraudsters, including Terraform Labs, and represented the liquidators of the Bernard L. Madoff Ponzi scheme. At McKool Smith, he represented the Celsius trust in post-bankruptcy litigation.
Murphy’s Law helps clients navigate the new crypto regulatory landscape through:
- Crypto Compliance Consulting: Building AML, BSA, OFAC, and sanctions compliance programs tailored to your business and the regulatory framework that applies to your specific assets and services.
- Regulatory Defense: Representing individuals and companies facing SEC, CFTC, DOJ, or state-level investigations and enforcement actions.
- Token Classification Analysis: Conducting legal analysis under the new five-category framework to determine your token’s regulatory status and advise on structuring to minimize compliance risk.
- Crypto Fraud Recovery Litigation: Pursuing claims against scammers, fraudulent platforms, and bad actors through demand letters, civil complaints, and federal court litigation.
Frequently Asked Questions About SEC Crypto Regulations
Is Bitcoin a security?
No. Under the March 2026 SEC/CFTC joint interpretation, Bitcoin is classified as a digital commodity and falls under CFTC oversight, not SEC securities regulation. This classification also applies to Ethereum, Solana, XRP, and 12 other major cryptocurrencies.
What is the Howey test and how does it apply to crypto?
The Howey test is a legal standard from a 1946 Supreme Court case used to determine whether an asset qualifies as a security. It asks whether there is an investment of money in a common enterprise with an expectation of profit derived from the efforts of others. The SEC still uses the Howey test to evaluate crypto assets, but the new framework clarifies that investment contracts can terminate once a project is fully decentralized and development promises are fulfilled.
Are stablecoins regulated now?
Yes. The GENIUS Act, signed into law on July 18, 2025, established the first comprehensive federal regulatory framework for payment stablecoins. Issuers must maintain 1:1 reserve backing, comply with AML/KYC requirements, and publish monthly reserve disclosures. Compliant stablecoins are excluded from both securities and commodity definitions.
What is the CLARITY Act?
The CLARITY Act (Digital Asset Market Clarity Act of 2025) is legislation that passed the U.S. House of Representatives in July 2025. It creates a legal definition for “digital commodities,” grants the CFTC primary authority over spot digital commodity markets, and establishes registration requirements for exchanges, brokers, and dealers. It is currently awaiting Senate action.
Do I need a crypto lawyer to stay compliant with SEC regulations?
If you are launching a token, operating an exchange, building a DeFi protocol, or running any crypto-related business, consulting a crypto lawyer is strongly recommended. The regulatory framework is evolving rapidly, and the penalties for non-compliance can be severe. Even individual investors dealing with significant tax events, fraud losses, or regulatory inquiries benefit from specialized legal counsel.
Does Murphy’s Law offer free consultations?
Yes. Murphy’s Law offers free initial consultations. Contact Liam Murphy directly through murphyslawcrypto.com to discuss your regulatory questions, compliance needs, or any other cryptocurrency legal matter.
Stay Ahead of the Regulatory Curve
The crypto regulatory landscape has changed more in the past 18 months than in the prior decade. New rules are being written, new agencies are taking jurisdiction, and new compliance obligations are taking effect. Whether you are an investor protecting your portfolio or a builder launching the next breakthrough protocol, understanding these regulations is essential.
Contact Liam Murphy today for a free consultation or call 913-575-0540.