SEC Drops 'Reg Crypto' Rulemaking: Do We Still Need Clarity?

The SEC released a proposed rulemaking on crypto assets running approximately 400 pages, with a 60-day public comment period now underway. Alex Zanderzozos explained that the proposing release starts a formal rulemaking clock that matters because a future administration could wipe proposed rules clean. The internal process took over a year and was submitted to the White House in March before public release. He noted that rulemakings 20 to 30 years ago were 15 to 20 pages and now reach 400 pages partly to demonstrate compliance with the Administrative Procedures Act, with economic analysis becoming a focal point following judicial challenges known as the Business Roundtable decisions.

Zanderzozos described the proposed regulation, referred to as Reg Crypto, as a culmination of engagement and thought leadership from Commissioner Purse at the SEC. He characterized it as a barbell structure addressing both the entry and exit of how securities laws apply to crypto assets, including two fundraising exemptions allowing minimal disclosure and token distribution, plus a back-end safe harbor for tokens to eventually not be considered securities. He said Reg Crypto addresses what he called the Hotel California problem of entering the securities regulatory framework but being unable to exit, and that it reflects a version of what has been called the embodiment theory.

Reg Crypto is narrow in scope, covering only what is currently within the SEC's purview and addressing the first four of five digital asset categories the SEC defined earlier in the year, which include digital collectibles, digital commodities, and digital securities, but not stablecoins. Spot market authority and developer protections are not covered and remain for the Clarity Act and Congress to define. Zanderzozos predicted the regulation will likely spur Congress to fill in the jurisdictional gaps left between the SEC and CFTC, and that it opens SEC capacity to focus on tokenized securities utilizing new technology.

Rebecca Reddock noted that some traditional finance associations are reportedly planning to sue over the final rule, making the SEC's detailed internal documentation strategically important for defending the rulemaking. Chairman Atkins has said it will take legislation to prevent a future rogue regulator from unwinding Reg Crypto, and the current SEC position is viewed broadly as a window of opportunity rather than a durable foundation. An APA suit challenging the position is expected, and participants in TRED5 are already reportedly considering a challenge.

On the CFTC side, Renato argued that Hyperliquid cannot realistically be brought onshore given the current state of the Commodity Exchange Act and existing CFTC regulations. Reddock clarified that President Trump did not specify Hyperliquid would come onshore unregulated, only that work is being done to bring it onshore in a fully compliant and legal fashion. CFTC Chair Selig has indicated that core principles under the Commodity Exchange Act and enacting regulations may be modified to accommodate crypto innovations. Renato added that the CFTC can police fraud but cannot register anyone without the Clarity Act, and that without congressional action the CFTC lacks vested authority over crypto assets that are not securities.

A Connecticut federal judge, Vernon Oliver, ruled that sports event contracts are not swaps and that the CFTC lacks exclusive jurisdiction over them. The CFTC declared a market emergency and ordered Kalshi to keep operating regardless of what state courts say, after which Judge Oliver issued a follow-on decision criticizing the CFTC's use of emergency powers and holding that the agency lacks jurisdiction to contradict the courts. Renato noted that Judge Oliver cited Loper Bright, holding that nothing in the Commodity Exchange Act hands statutory interpretation to the agency. Reddock said she is not certain the ruling accurately reflects what Loper Bright says and believes CFTC interpretation of the Commodity Exchange Act deserves some deference. She predicted the prediction market dispute, including questions over gaming, will likely reach the Supreme Court in 2027.