Is Crypto a Security? The SEC’s Long and Unfinished Game
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Remember the childhood game where kids plucked daisy petals one by one to decide whether someone loved them—or didn’t?
Since the emergence of digital assets, it often feels like the U.S. Securities and Exchange Commission (SEC) has been playing a similar guessing game to determine what qualifies as a security.
Based on several recent statements from the SEC, the final petal seems to suggest that digital assets are securities.
Well… kind of.
The SEC’s “Unofficial” Crypto Framework
Earlier this month, after years of regulatory uncertainty, the SEC’s Division of Corporate Finance released a long-anticipated—but notably unofficial—staff framework addressing digital assets.
As the SEC itself emphasized, this document is not a comprehensive statement of the law. Instead, it offers a set of guiding questions designed to help market participants analyze whether federal securities laws might apply to the issuance, sale, or resale of a digital asset.
Importantly, the framework is not a rule, regulation, legal opinion, or even an official position of the Commission. At its core, it is a 13-page collection of staff perspectives and disclaimers that arguably raises more questions than it answers.
More Questions Than Certainty
According to Drew Hinkes—general counsel at Athena Blockchain, attorney at Carlton Fields, and law professor at NYU—the framework falls short of providing the clarity many in the industry have been seeking.
“For those hoping for certainty,” Hinkes explains, “this framework does not deliver a single, definitive checklist. It’s not binding law or formal guidance. Instead, it’s another analytical tool for attorneys, leaving courts to ultimately decide whether a specific token qualifies as a security.”
The Howey Test Still Rules
Unsurprisingly, the framework relies heavily on the Howey Test, established by the Supreme Court in SEC v. W.J. Howey Co. (1946).
Under Howey, an asset may be considered a security if it involves:
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An investment of money
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In a common enterprise
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With an expectation of profits derived primarily from the efforts of others
It is the third prong—expectation of profits from others—that creates the most uncertainty for digital assets.
The Problem with “Active Participants”
To address this issue, the SEC introduced a broader concept within the third prong: the “Active Participant” (AP).
The definition of an Active Participant is expansive, potentially covering anyone involved in a token’s ecosystem—developers, promoters, sponsors, managers, or other third parties who could influence the project’s success.
Hinkes warns that this vague definition could have serious consequences. An AP might be interpreted as any person making statements that investors rely on, opening the door to First Amendment concerns and significantly expanding the pool of potential defendants in securities litigation.
The TurnKey Jet No-Action Letter
On the same day the framework was released, the SEC also issued a no-action letter to TurnKey Jet, Inc., confirming that its proposed loyalty token would not be treated as a security.
This conclusion surprised no one. The TurnKey token, designed solely for internal use within a closed ecosystem, was about as far from a security as possible.
Even SEC Commissioner Hester Peirce—often referred to as “Crypto Mom”—acknowledged that the example was “so obviously not a security” that it offered little practical guidance to entrepreneurs.
Real Regulatory Movement Behind the Scenes
While many dismissed the framework and no-action letter as largely symbolic, April saw two developments with potentially significant implications for digital assets in the U.S.:
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The reintroduction of the Token Taxonomy Act of 2019 (H.R. 2144)
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Blockstack’s Form 1-A filing with the SEC
Why These Two Matter
If enacted, H.R. 2144 would broadly classify digital assets as non-securities, removing them from the SEC’s jurisdiction. The bill would also introduce favorable tax changes, including:
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Allowing cryptocurrency holdings in IRAs without triggering distributions
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Exempting crypto-to-crypto trades from taxable events
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Eliminating capital gains tax on small cryptocurrency transactions
Meanwhile, Blockstack’s filing may be equally transformative.
Blockstack and the Future of STOs
Blockstack, known for building a decentralized internet platform and inspiring storylines like HBO’s Silicon Valley, has been working with the SEC under the Regulation A+ “test-the-waters” process.
This confidential process allows companies to gauge investor interest before a public filing. Blockstack’s move to publicly file suggests strong demand and raises hopes that its token could receive formal qualification.
An approval would set a precedent for Security Token Offerings (STOs) in the U.S.
But would it unlock widespread adoption?
Still Waiting for Clarity
According to Matthew Muscarnera, audit partner at EisnerAmper’s Financial Services Group, uncertainty remains a major barrier.
“While the SEC’s framework is a step forward,” he notes, “it still leaves critical questions unanswered—especially from an audit standpoint. Without clearer regulatory guidance, the STO market may struggle to reach its full potential.”
Final Thoughts
Until Congress acts or courts provide definitive rulings, U.S. token issuers are best advised to assume their tokens are securities—unless, of course, they are as harmless as a lunchtime kale salad.
This is no longer a game of petals.
It’s a waiting game.
And it may be a very long one.