SEC’s first ‘crypto’ roundtable—some key takeaways

On March 21, the U.S. Securities and Exchange Commission (SEC) hosted the first in a series of public roundtables titled 
“How We Got Here and How We Get Out – Defining Security Status.” Although it was open to the public, the discussion was largely shaped by a hand-picked group of lawyers and policymakers who have played key roles in the blockchain and digital asset ecosystem over the past decade.

The goal of the roundtable was to figure out how to define cryptocurrencies within the U.S. regulatory system—and, more specifically, whether they meet the criteria for being labeled as securities.

Lucky for you, I sat through the hour and 40-minute highly technical legal discussion, so you don’t have to. Here’s what stood out, what surprised me, and what it all might mean for the future of digital currency policy in the United States.

The surprising push to classify ‘crypto’ as a security 

The first thing that caught me off guard was the tone. Given that many panelists have worked directly with or adjacent to the crypto industry, I expected an approach that was almost blindly pro-market in a way that was in line with the White House’s broader hands-off, take down the guard rails, let it be a free-market approach—but that wasn’t the case.

Some panelists argued quite strongly that crypto should be considered a security, pointing to the four prongs of the Howey Test as a framework that fits many current crypto projects. Others pushed back, arguing that not all cryptocurrencies meet the Howey criteria. Still, what was clear is that no one on the panel believed crypto should be allowed to operate in regulatory ambiguity.

For those who believed the Howey Test is outdated or unfit for modern digital assets, a potential path forward discussed was legislative action, Congress amending securities laws to specifically include cryptocurrency. The panel then acknowledged that even though that sounds simple in theory, it would be complicated by the fact that securities are not all treated equally since Equities, investment contracts, and other financial instruments all come with different handling requirements and protections.

If crypto isn’t a security, what is it?

The natural counterpoint to declaring crypto a security is labeling it something else—most commonly, a commodity. In fact, several regulators have already said on record that some cryptocurrencies, particularly Bitcoin, are commodities.

But the roundtable highlighted why that route creates its own set of issues. The Commodity Futures Trading Commission 
(CFTC) oversees commodities, but as Benjamin Schiffrin, Director of Securities Policy at Better Markets, pointed out during the roundtable, that agency was never designed to protect retail investors. The CFTC’s mandate focuses on market integrity and preventing manipulation in commodities trading, but it was never built to safeguard everyday investors. Securities law, by contrast, is specifically designed with retail investor protection at its core.

“Is it really the right thing to say the CFTC, for example, should be the regulator of crypto?” Schiffrin asked. “My concern there is the CFTC does not have an investor protection mission… which would be fine if crypto wasn’t being marketed to retail investors, but I think it is.”

Another topic raised during the roundtable was whether the crypto industry has done enough to comply with existing regulations—or whether the SEC has created a system so unworkable that compliance is practically impossible.

Panelists seemed to agree on at least one thing: the SEC’s current framework is outdated. While former SEC Chairman Gary Gensler quickly criticized crypto companies for failing to register, industry insiders argue that many have tried—and failed—because the guidance they’ve received is vague, outdated, or both.

“It’s not really fair to say the industry has just decided not to comply,” said Miles Jennings, General Counsel at a16z Crypto. “If you look at those that sought to come in and register, all of them went bankrupt. The SEC hasn’t provided any guidance to the industry since 2019—even though the technology and the approach companies are taking has changed substantially every year.”

Jennings said this leaves lawyers advising clients based on outdated guidance that no longer fits the realities of the industry, which not only puts their client in a difficult position when trying to proceed as a business but the lawyer in a challenging position as well because their clients do not like to hear “no” too many times, especially when another player in their industry seems to have figured out how to proceed with the items their lawyer was advising against.

Even though the group didn’t arrive at a firm conclusion on how cryptocurrencies should be classified, they did agree that crypto needs to be classified as something. That’s not just for the sake of protecting investors. It’s for the benefit of the businesses building in this space, many of which genuinely want to play by the rules, but just don’t know what those rules are. 

How regulatory roundtables could shape crypto’s future

Many of these hearings and roundtables often feel like policy theater, but that doesn’t mean they don’t matter.

What’s said in these rooms gets cited in memos, referenced in policy drafts, and echoed in legal briefs; it also can set the tone or act as reference material for future policy; and in an industry that’s been shrouded in regulatory uncertainty, those points of reference matter.

“Many have long asked for a regulatory framework for crypto—one that’s workable—and now we have the opportunity to be part of constructing that,” the SEC said during its closing remarks. They also noted that individuals should keep contributing to the dedicated website where the public can submit their input to the SEC’s Crypto Task Force to help shape future frameworks, which is arguably a small move, but one that could make a significant difference in the way that regulators engage with the crypto space moving forward.

Watch: Reggie Middleton on DeFi, booms/busts & crypto regulation