May 06, 2025
By Our Correspondent
Internal divisions within the digital asset sector are generating uncertainty as the U.S. Congress seeks to propose a cryptocurrency market structure bill prior to its August recess.
Despite extensive industry proposals to lawmakers, the absence of agreement on essential regulatory frameworks now poses a risk of complicating the legislative process. A fundamental disagreement revolves around the relevance of the Howey Test—a legal criterion established in 1946 for defining securities—in relation to digital assets.
The Securities and Exchange Commission (SEC) has consistently applied the Howey Test in enforcement actions against cryptocurrency companies, facing criticism from numerous industry stakeholders who contend that it is an outdated or unsuitable standard for this asset category.
Four primary legal perspectives have emerged. One viewpoint advocates for the retention of the Howey Test for individual assessments, endorsed by current SEC Commissioner Caroline Crenshaw and former SEC Internet Enforcement Chief John Reed Stark. In contrast, individuals such as newly appointed SEC Chairman Paul Atkins and several Republican legislators have condemned the current framework, advocating for substantial regulatory reforms and a more innovation-friendly stance.
Among some cryptocurrency attorneys, there is a growing argument that transactions involving digital assets should only be classified as securities if they are explicitly linked to a written investment contract. This perspective often cites arguments presented during the Ripple legal proceedings that commenced in 2020, despite the fact that Ripple’s specific contract-based defense was not fully embraced by the court.
An alternative proposal, supported by attorneys such as Lewis Cohen from Cahill Gordon & Reindel, recommends a bifurcated strategy utilizing the ‘ancillary asset’ framework. This model may incorporate existing legislative initiatives like the Responsible Financial Innovation Act (RFIA), treating initial token sales as securities offerings while possibly exempting subsequent secondary market transactions from certain securities regulations.
A concluding perspective, endorsed by prominent entities including a16z Crypto, Coinbase, and Optimism, contends that transactions on sufficiently decentralized networks should be completely exempt from securities laws. This stance is significantly influenced by a 2018 address from former SEC Director William Hinman regarding Ethereum’s classification (often referred to as the ‘Hinman Test’ standard) and has received backing from Commissioner Hester Peirce.
Advocates call for a formal ‘decentralization test’ to differentiate public blockchain infrastructure from centrally controlled token offerings. The House Financial Services Committee and the House Agriculture Committee are expected to unveil a draft market structure bill—likely akin to last year’s FIT21 Act—soon, in advance of a scheduled joint hearing on May 6th. Following its introduction, regulatory agencies such as the SEC and CFTC are anticipated to initiate formal rulemaking processes.
Legal professionals and industry organizations throughout the cryptocurrency sector are already gearing up to provide comprehensive feedback via comment letters and public testimonies.
