On August 18, 2026, the Securities and Exchange Commission (“SEC”) issued its proposed new rules directed at crypto based transactions. The proposed regulation, titled Regulation Crypto Assets (the “Regulation”), sets forth guidelines pertaining to the use of crypto assets within investment contracts.
The term crypto asset is generally defined as an asset generated, issued, or transferred by distributed ledger technology, such as blockchain. Under this definition, crypto assets include tokens, coins, virtual currencies, and digital assets. Crypto asset markets have continued to evolve and become more complex, both domestically and internationally, since the emergency of Bitcoin in 2008. In addressing this increasingly growing field, the SEC has faced numerous challenges with its regulatory efforts, primarily due to incompatibility between its existing pre-crypto regulations and the digital asset market. The SEC’s recent proposal, however, seeks to address these prior challenges by setting forth a reliable framework benefiting all participants within domestic crypto markets.
SEC’s proposed Regulation sets forth a tailored approach for covered investment contracts involving digital assets by establishing modern guidelines, accommodating crypto innovation, while also providing investor protection measures. The proposed Regulation contains two key exemptions, the “startup exemption” and the two-tiered “fundraising exemption,” which serve to remove certain Securities Act registration requirements for qualified issuers. Under the startup exemption, issuers may conduct offerings of covered investment contracts, up to $5 million, for up to four years. Tier 1 of the fundraising exemption permits issuers to conduct offerings of up to $20 million of covered investment contracts within a 12-month period, while Tier 2 permits offerings of up to $75 million.
The proposed Regulation also contains an investment contract safe harbor provision limiting the meaning of an “investment contract” as defined by the term “security” within the Securities Act of 1933 and Securities Exchange Act of 1934. Under this provision, a crypto asset subject to a covered investment contract would not qualify as an investment contract under the statutory definition of “security.” Application of the safe harbor provision is conditional and will only apply to an issuer of a covered investment contract upon satisfaction of certain requirements. In turn, the proposed Regulation effectively preempts state securities law governing registration and qualification requirements applicable to offers and sales of covered investment contracts by adding the term “qualified purchaser” to the Securities Act.
SEC’s proposed Regulation constitutes ongoing efforts to adapt existing securities law to the modern marketplace in order to facilitate market participation while also maintaining adequate investor protections. Moreover, the proposed Regulation builds on SEC’s prior measures taken to address the manner in which federal securities laws apply to digital asset based transactions. As the crypto market continues to expand and evolve in complexity, the SEC has demonstrated its ongoing commitment to engage in proactive regulatory efforts to support an operational domestic crypto market with clear guidelines and investor protections.