SEC Proposes "Regulation Crypto Assets"

Background

The crypto asset markets have grown significantly since the advent of Bitcoin in 2008, but the SEC has not adapted its rules to address the unique aspects of this asset class. Without fit-for-purpose rules, existing regulatory requirements, many of which were adopted well before the proliferation of crypto assets, could complicate an issuer's transaction planning and impede capital formation and innovation in the crypto asset markets. In March 2026, the SEC issued an interpretive release (the 2026 Interpretation) clarifying how the federal securities laws apply to certain crypto assets and transactions involving crypto assets. Building on this interpretation, Regulation Crypto Assets would provide a tailored offering regime for covered investment contracts.

Among other things, the 2026 Interpretation established a five-category taxonomy that classifies crypto assets based on their characteristics, uses, and functions: (1) digital commodities, such as Bitcoin (BTC), Ethereum (ETH), Solana (SOL), and XRP, which are not securities; (2) digital collectibles, such as non-fungible tokens (NFTs) and memecoins, which are not securities; (3) digital tools, such as memberships and credentials, which are not securities; (4) stablecoins, including payment stablecoins issued under the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which are not securities; and (5) digital securities, meaning financial instruments formatted as crypto assets, which are securities. Regulation Crypto Assets builds on this taxonomy by focusing specifically on non-security crypto assets that are sold as part of an investment contract. (For a detailed analysis of the 2026 Interpretation and the historical evolution of the SEC's approach to digital asset regulation, see Baker Donelson's March 2026 alert, SEC-CFTC Joint Interpretation Caps a Decade of Shifting SEC Policy).

In announcing the proposal, SEC Chairman Paul S. Atkins stated:

"As we continue the Commission's efforts to provide clarity for crypto markets, and as Congress works to establish a lasting regulatory framework, Regulation Crypto Assets seeks to provide crypto asset entrepreneurs and market participants with clear pathways to raise capital under the federal securities laws. In line with the Commission's earlier interpretative guidance, this proposal would also allow for a safe harbor once an issuer has completed or permanently ceased all essential managerial efforts that it represented or promised it would take under an investment contract. Congress designed our securities laws to amplify, within specific guardrails, opportunities for entrepreneurs to innovate and build new products. Advancing this regulatory framework is a key element in our strategy to advance the rule books for the modern era and another step by the Commission to onshore innovation in crypto asset markets for generations to come."

The proposed rules include four principal components:

• The startup exemption, which would exempt offerings of up to $5 million from the registration requirements of the Securities Act of 1933 (Securities Act) as a one-time and non-exclusive exemption during a four-year period;
• The fundraising exemption, which would exempt offerings of up to $75 million from the registration requirements of the Securities Act during each 12-month period modeled in part on Regulation A;
• The investment contract safe harbor, which would provide a conditional safe harbor from the term "investment contract" in the definitions of "security" in the Securities Act and the Securities Exchange Act of 1934 (Exchange Act);
• The definition of "qualified purchaser" for purposes of the Securities Act, which would preempt state securities law registration and qualification requirements with respect to offers and sales of covered investment contracts issued pursuant to an exemption in Regulation Crypto Assets, as well as certain secondary market transactions.

Under the proposed rules, a "covered investment contract" is defined as a contract, transaction, or scheme that constitutes an investment contract, provided that: (1) a crypto asset is subject to the investment contract; (2) such crypto asset is not itself a security; and (3) no asset other than that crypto asset (including any security or non-security asset) is subject to the investment contract. This term is used throughout Regulation Crypto Assets, as the startup exemption and the fundraising exemption are available only for offers and sales of covered investment contracts (i.e., issuers may not rely on those exemptions with respect to offers and sales of other types of securities).

A "crypto asset" means any digital representation of value that is recorded on a cryptographically-secured distributed ledger. This term is used throughout Regulation Crypto Assets and dictates the scope of the proposed rules. For example, the investment contract safe harbor is available only with respect to investment contracts involving crypto assets (i.e., other types of assets may not rely on that safe harbor, even if they are subject to an investment contract).

Startup Exemption

The startup exemption would be a one-time, non-exclusive exemption from Securities Act registration requirements. It would permit issuers to conduct offerings of covered investment contracts of up to $5 million during a period of up to four years if they satisfy certain conditions.

The six conditions are:

• Four-Year Duration: The covered transaction would occur during the period beginning after the issuer has filed a notice of reliance and ending on the date that is the earlier of (i) four years after the date of such filing or (ii) the date on which the issuer files a transition report.
• Issuer Eligibility: The issuer may be an entity, an individual, or a group of individuals or entities. Each member of a group would be required to sign the notice of reliance and transition report and provide the required certifications, and members would be responsible individually and collectively for satisfying the conditions of the exemption.
• One-Time Use: The issuer and its affiliates must not have previously relied on the startup exemption with respect to the same or a substantially similar crypto asset, other than with respect to covered transactions that occurred during the four-year period.
• Offering Limit: The sum of the aggregate offering price plus the gross proceeds from all covered transactions before the start of and during the current covered transaction must not exceed $5 million.
• Disclosure and Filing Requirements: The issuer must file a notice of reliance on Form NOR with the SEC on EDGAR prior to any covered transaction. Form NOR requires basic issuer information, the name of the subject crypto asset, the website address for required disclosures, and a certification that the issuer intends to fulfill within four years the essential managerial efforts it promised investors. The issuer must also make the information described in Rule 103 publicly accessible, free of charge, at the website address specified in the notice of reliance. This information must remain publicly accessible throughout the exemption period and must be amended within 30 calendar days after each calendar year-end for material changes. Lastly, the issuer must file Form TR on EDGAR no later than four years after filing the initial notice of reliance.
• General Conditions: The issuer must satisfy the applicable requirements set forth in subpart A of Regulation Crypto Assets, including the disqualification provision in Rule 104.

The startup exemption does not require financial statements or ongoing periodic reporting to the SEC. Issuers that rely on the exemption remain subject to the antifraud and antimanipulation provisions of the federal securities laws, including Section 17 of the Securities Act and Section 10 of the Exchange Act.

Fundraising Exemption

The fundraising exemption would be a non-exclusive, two-tier exemption from Securities Act registration requirements, modeled in part on Regulation A.​​​​​

Key additional conditions and requirements:

• Issuer Eligibility: The fundraising exemption would be available only to an entity organized in the United States, with a majority of executive officers or directors who are U.S. citizens or residents, more than 50 percent of the issuer's assets located in the United States, and the issuer's business administered principally in the United States. The exemption would not be available to: (1) development-stage companies without a specific business plan, registered investment companies or companies required to be registered under the Investment Company Act, business development companies, issuers who have not filed with the SEC certain reports, and issuers subject to certain Exchange Act orders.
• Offering Statement: Issuers must file Form 1-CRYPTO offering statements on EDGAR, including an offering circular consisting of: (1) the same principles-based narrative disclosures as required under the startup exemption (Rule 103); (2) a discussion of the issuer's financial condition; and (3) financial statements.
• Pre-Qualification Communications: "Testing the waters" communications are permitted. No sales of securities may occur until the offering statement has been qualified.
• Investment Limitations: Non-accredited investors generally may not invest more than 10 percent of the greater of the investor's annual income or net worth (or in the case of non-natural persons, the greater of revenue or net assets for the most recently completed fiscal year). This limitation applies to both Tier 1 and Tier 2 offerings, unlike Regulation A (which limits only Tier 2).
• Non-Public Submission: Draft offering statements may be submitted for non-public review by the SEC's staff but must be publicly filed on EDGAR not less than 15 calendar days prior to qualification.
• Ongoing Reporting: Unlike Regulation A, both Tier 1 and Tier 2 issuers are subject to ongoing reporting requirements. Annual reports on Form 1-KC are due within 120 calendar days after fiscal year-end, semiannual reports on Form 1-SC are due within 90 calendar days after the semiannual period, and current reports on Form 1-UC are due within four business days after specified events.

Issuers that rely on the fundraising exemption remain subject to the antifraud and antimanipulation provisions of the federal securities laws.

Investment Contract Safe Harbor

The investment contract safe harbor would provide a conditional safe harbor from the term "investment contract" in the definitions of "security" in the Securities Act and the Exchange Act. If the conditions are satisfied, then a covered investment contract would be deemed to have ceased to exist, and the crypto asset that was subject to the covered investment contract would be deemed by the SEC not to constitute or be subject to such investment contract for purposes of those statutory definitions of "security."

Conditions to satisfy the safe harbor:

• The issuer has completed or otherwise permanently ceased all essential managerial efforts that it represented or promised it would engage in under the covered investment contract, and is not making and does not intend to make any new representations or promises to engage in essential managerial efforts with respect to the crypto asset; and
• The issuer files a transition report on Form TR with the SEC, providing an analysis supporting its certification that it has satisfied the conditions of the safe harbor.

The safe harbor is non-exclusive and available to any issuer, including those that have or have not used the proposed exemptions. The safe harbor does not provide the sole means by which a crypto asset may fall outside the scope of the federal securities laws as a crypto asset may independently not be subject to an investment contract under the Howey test.

Once an issuer satisfies the safe harbor, the SEC would take the position that the reporting, registration, and other requirements of the federal securities laws no longer apply from that point forward. However, the SEC would not be precluded from challenging whether an issuer did, in fact, satisfy the conditions.

Preemption of State Registration and Qualification Requirements

The proposed rules would add a definition of "qualified purchaser" under the Securities Act such that state securities law registration and qualification requirements would be preempted with respect to offers and sales of covered investment contracts pursuant to an exemption in Regulation Crypto Assets.

With respect to secondary market transactions by any person other than an issuer, underwriter, or dealer, the proposed amendments would preempt state securities law registration and qualification requirements for covered investment contracts that were initially sold by the issuer pursuant to an exemption in Regulation Crypto Assets or another exemption under the federal securities laws, provided the issuer has satisfied a Regulation Crypto Assets exemption and remains current with applicable disclosure, filing, and periodic reporting requirements.

Preemption applies to both Tier 1 and Tier 2 fundraising offerings and to the startup exemption. States retain authority to investigate and bring enforcement actions, in connection with securities or securities transactions, with respect to (i) fraud or deceit or (ii) unlawful conduct by brokers or dealers. In addition, states retain the authority to require notice filings, fees, and consent to service of process.

Key Disclosure Requirements (Rule 103)

Issuers relying on either exemption must provide the following material disclosures:

• Covered Investment Contract: Material terms, including the issuer's representations or promises regarding essential managerial efforts and progress toward fulfillment.
• Offering: Material terms, including number of units, purchase price, duration, and intended use of proceeds.
• Subject Crypto Asset: Name and material aspects of the crypto asset.
• Management, Related Persons, and Conflicts of Interest: Material aspects of the issuer's management and related persons, material aspects of any conflicts of interest, and whether related persons are subject to transfer or resale restrictions and the material terms of such restrictions.
• Associated Crypto Network/Application and Plan of Development: Material aspects of the associated crypto network or associated crypto application and the issuer's plan of development, including the issuer's progress with respect to its development plan.
• Security and Source Code: Material aspects of security and the website address for source code, if publicly available.
• Subject Crypto Asset Economics and Allocations: Subject crypto asset's supply, pricing, lockups, distribution methods, holdings by related persons, and release schedules.
• Governance: Subject crypto asset's governance mechanisms, smart contract governance, and permissions.
• Subject Crypto Asset Ecosystem: Description of the current and anticipated ecosystem, including technology infrastructure and types of participants.
• Risk Factors: Short, concise statements of material risk factors specific to the offering.

Additional Notable Provisions

• "Bad Actor" Disqualification: Regulation A Rule 262 disqualification provisions are incorporated, subject to prospective application for pre-effective events.
• Inflation Adjustments: The SEC would periodically adjust the startup and fundraising offering limits (at least every five years) for changes in the Consumer Price Index.
• Broker-Dealer and Exchange Exemptions: The proposal does not address exemptions concerning the statutory definitions of "exchange," "broker," or "dealer."
• Non-Exclusive Exemptions: Compliance with any Regulation Crypto Assets exemption or safe harbor does not act as an exclusive election and issuers may claim any other applicable exemption.

Implications for the Crypto Asset Market

• Signal of Pro-Innovation Regulatory Posture: Chairman Atkins explicitly frames the securities laws as designed to "amplify opportunities for entrepreneurs to innovate," not merely to restrict activity. For issuers and developers who have hesitated to engage with the SEC, this language signals that the SEC views Regulation Crypto Assets as an enabling framework, not a punitive one.
• "Onshoring" Objective: The phrase "onshore innovation in crypto asset markets for generations to come" is a direct acknowledgment that prior regulatory ambiguity drove crypto activity offshore. Market participants who have structured operations outside the U.S. to avoid regulatory uncertainty can point to this language as evidence that the Commission is actively trying to make domestic capital formation viable for crypto projects.
• Validates the Safe Harbor Pathway: By specifically highlighting that the proposal "would allow for a safe harbor once an issuer has completed or permanently ceased all essential managerial efforts," Chairman Atkins personally endorses the concept that crypto assets can graduate out of securities regulation. This is a powerful data point for projects planning their path toward decentralization.
• Acknowledges the Parallel Congressional Effort: The reference to Congress "work[ing] to establish a lasting regulatory framework" signals that the SEC views Regulation Crypto Assets as complementary to, and perhaps a replacement for, legislation if the Clarity Act is never passed by Congress. This is relevant for market participants assessing whether to rely on the proposed rules or wait for statutory clarity, as it suggests the SEC expects both tracks to proceed in tandem.
• Carries the Weight of the Chairman's Personal Endorsement: Regulatory proposals can be modified or withdrawn. A public statement from the Chairman tying the proposal to the Commission's broader "strategy to advance the rule books for the modern era" suggests institutional commitment that goes beyond a single rulemaking, which is reassuring for participants making long-term investment and compliance decisions.

Potential Action Items for Market Participants

In light of the proposed rules, issuers of crypto assets and other market participants should consider evaluating the applicability of the exemptions, reviewing disclosure practices and financial reporting readiness, and planning for ongoing compliance. Fund managers, in particular, should evaluate whether their portfolio crypto assets fall within the scope of "covered investment contracts" and, if so, what disclosure and reporting obligations may apply with respect to the underlying issuers. Fund managers also should note that the investment contract safe harbor may affect the classification of assets held in their portfolios over time as issuers achieve decentralization milestones.

Lastly, issuers and market participants may submit comments on the proposal. The public comment period will remain open for 60 days following publication in the Federal Register. Comments may be submitted electronically through the SEC's website or by email to rule-comments@sec.gov, referencing File Number S7-2026-27.

Additional Information

For any questions regarding the SEC's proposed Regulation Crypto Assets, please contact Paul J. Foley, John M. Faust, Kiki Scarff, and Cole Beaubouef.