Crypto Rules Still Vague: Why the New Guidance Falls Short

The Securities and Exchange Commission (SEC) released new rules on March 19, together with the Commodity Futures Trading Commission, hoping to clarify how U. S. securities laws apply to digital assets. The move is a step forward, especially on topics like staking and meme coins, and it corrects some of the confusion caused by former Chair Gary Gensler’s enforcement‑by‑action approach. Yet, the guidance still leaves many critical questions unanswered. A major issue is how the SEC defines an “investment contract” under the Howey test. Most people agree that a single digital token is not, by itself, an investment contract. The problem arises when a token is sold as part of a broader scheme that promises future profits. The new guidance says a contract exists when the developer’s statements and actions “induce an investment of money in a common enterprise” and create a reasonable expectation of profit. This wording does not clearly separate the contract from the token, leaving room for interpretation. During Gensler’s tenure, the SEC often built an investment‑contract claim from public statements—tweets, white papers, marketing posts—even when no concrete promise was made. The new rules now require that any representations be explicit, unambiguous, and detailed before a sale. Still, they allow the possibility that vague public hype could be enough to trigger securities law. The guidance does not firmly reject the idea that a token’s value can be driven by marketing alone, as it has been with collectibles like Beanie Babies.The SEC also touches on secondary‑market trading. It acknowledges that a token is not permanently an investment contract just because it once was. However, it says tokens remain subject to the Howey test on exchanges if buyers “reasonably expect” that issuer promises stay linked to the asset. The guidance offers only two examples of when an investment contract separates from a token and says nothing about whether the buyer must have a direct contractual relationship with the issuer. This ambiguity could let future regulators or courts expand the test in unpredictable ways. A clearer approach would follow Judge Analisa Torres’s ruling in Ripple. She held that a token sold on a public exchange, where buyers do not know the seller’s identity, cannot reasonably expect that their money will be used to generate profits for the issuer. The SEC should adopt this reasoning explicitly, preventing enforcement from treating every exchange trade as a securities transaction. If the SEC does not sharpen its language, it risks reviving Gensler‑style enforcement. Private lawsuits could target exchanges or other industry players, and the SEC might interpret its own guidance to impose stricter rules. The current version of the rules merely gives a facelift to an old enforcement model, leaving the industry in a precarious position. The crypto community must engage with the comment period and push for clearer, more stable regulations. Only then can digital assets thrive under a predictable legal framework.