Written by: Marcus Wolter, Ai-Jo Wu, and Elizabeth Bestwick
Why This Distinction Matters
The classification of crypto assets affects taxation, investor protections, and market access. Securities fall under SEC regulations, affecting their issuance, trading, and availability. Bitcoin, Ethereum, and other commodities are regulated by the Commodity Futures Trading Commission (CFTC), which oversees trading and institutional investment. Crypto assets generally fall into three categories—currencies, commodities, or securities—each with distinct legal implications. The SEC classifies many tokens as securities, while the CFTC oversees Bitcoin, Ether, and other crypto commodities, including derivatives markets, creating a jurisdictional divide.[1] For an overview of the shifting regulatory landscape, refer to Regulatory Volatility in Crypto: Navigating SEC Policies & Market Shifts.
When Crypto is NOT a Security
Not all crypto assets fall under the SEC’s definition of securities. Bitcoin and Ethereum, for example, are classified as commodities and regulated by the CFTC.[1] Utility tokens, designed for accessing specific platforms or services rather than investment, generally fall outside securities laws. However, the SEC has scrutinized certain utility tokens that function as investment vehicles, arguing they should be classified as securities. How utility tokens are marked as used determines their legal status.[2]
Another category of digital assets that complicates regulation is stablecoins. Fiat-backed stablecoins like USDC and USDT are generally considered payment instruments rather than securities and are often regulated under state money transmission laws. Algorithmic stablecoins face greater scrutiny due to their structural risks and lack of collateralization, as seen in the 2022 TerraUSD collapse. With no comprehensive federal framework, regulators assess stablecoins based on factors like issuer structure, collateralization, and redemption mechanisms to determine whether they fall under securities, commodities, or banking regulations.[3]
The SEC vs. CFTC
The SEC and CFTC oversee different aspects of the crypto market. The SEC enforces securities laws to protect investors, while the CFTC regulates commodities and derivatives, including Bitcoin and Ether. The agencies frequently engage in legal disputes over their respective jurisdictions, particularly regarding staking, lending, and decentralized finance (DeFi).[1] Conflicting interpretations of DeFi platforms’ responsibilities highlight the risks of operating in a fragmented regulatory landscape. These legal battles highlight the ongoing uncertainty regarding crypto regulation.
Lawmakers have proposed bills to clarify regulatory oversight. Some initiatives aim to expand the CFTC’s authority over crypto markets, while others seek clearer definitions to distinguish between securities and commodities.[1]
Implications for Investors & Businesses
The classification of crypto assets directly impacts investors and businesses. Companies issuing digital tokens must carefully structure them to avoid SEC scrutiny, as misclassification could lead to enforcement actions. Investors should monitor SEC actions, as regulatory decisions impact token values, trading restrictions, and market stability. Staying informed and proactive is essential for navigating the evolving regulatory environment.
The Future of Crypto Regulation
Regulatory uncertainty continues to shape the crypto landscape. Ongoing lawsuits and legislative efforts aim to clarify digital asset classification, but ambiguity remains. The hope is that under the current administration, clearer guidelines emerge as regulators refine their approaches and courts set legal precedents. Until then, businesses and investors must stay flexible and ready to adapt to shifting regulations.
The legal status of crypto assets is still evolving, and the distinction between securities and commodities remains a key issue. Businesses must stay ahead of compliance requirements, while investors should track regulatory developments that could impact market dynamics. Adapting to legal changes will be key to thriving in this rapidly shifting industry.
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Sources
[1] K&L Gates. (2022, May 6). CFTC and SEC Perspectives on Cryptocurrency and Digital Assets: Volume I – A Jurisdictional Overview. K&L Gates. https://www.klgates.com/CFTC-and-SEC-Perspectives-on-Cryptocurrency-and-Digital-Assets-Volume-I-A-Jurisdictional-Overview-5-6-2022
[2] Bloomberg Law. (n.d.). Finance Professional Perspective: The Dual Nature of Utility Tokens. Bloomberg Law. https://www.bloomberglaw.com/external/document/X7SR30S8000000/finance-professional-perspective-the-dual-nature-of-utility-toke
[3] Global Legal Insights. (2025). The Regulation of Stablecoins in the United States. Global Legal Insights. https://www.globallegalinsights.com/practice-areas/blockchain-cryptocurrency-laws-and-regulations/the-regulation-of-stablecoins-in-the-united-states