A Missed Chance for Progress: The SEC Crypto Roundtable

The SEC Crypto Task Force Roundtable marked a departure from the previous administration's enforcement-focused approach, but it fell short by concentrating on past challenges rather than proposing solutions to shape the future regulatory framework for crypto. Since the 1946 Supreme Court decision in SEC v. W.J. Howey Co., the question of whether a product is a security or commodity has been a point of contention. The 'Howey' test, originally applied to citrus groves, has been difficult for courts to apply uniformly to digital assets, which represent a new and distinct category. The distinction between securities and commodities is crucial, as the SEC regulates the former and the CFTC oversees the latter. Congress is considering legislation similar to last year's FIT21 bill, which aims to move beyond the outdated Howey test and provide clear classification for specific digital assets. The roundtable, featuring prominent crypto lawyers and SEC task force members, could have served as a catalyst for ideas and proposals to inform legislators crafting the new crypto framework. However, much of the discussion centered on years-old debates about the Howey Test and philosophical discussions on the nature of securities. Some participants, like a16z General Counsel Miles Jennings, presented important proposals, such as focusing on economic reality rather than the legal relationship between issuer and investor. Nevertheless, the panel spent a significant amount of time debating topics like Bitcoin's use in ransomware attacks and the SEC's recent staff guidance on meme coins. Given the likelihood of shared regulatory authority between the SEC and CFTC in future legislation, the line between the two regulators is crucial for the crypto industry. The goal should be to establish clear rules that issuers can follow to ensure compliance, regardless of whether their token is deemed a security or commodity. While Commissioner Hester Peirce's creation of the roundtable and her openness are commendable, the event was a missed opportunity. The CFTC's absence was notable, and the crypto industry needs the SEC and CFTC to work together seamlessly. Congress is moving forward with its own solution to the question of when digital assets are securities, with or without the SEC's input. For the sake of the crypto industry, it is hoped that Commissioner Peirce's next roundtable will focus on fostering ideas that will inform the legislation that will shape the industry in the years to come.