Acting SEC Chairman Rejects Enforcement, Prefers Rulemaking for Cryptos

On March 21, Acting U.S. SEC Chair Mark T. Uyeda led the first session of the commission’s Cryptocurrency Task Force roundtable in Washington, D.C. During the event, he emphasized the need for the SEC to adopt formal rulemaking rather than relying on enforcement actions to regulate digital assets.

Addressing legal experts, regulators, and industry stakeholders, Uyeda highlighted the importance of establishing clear guidelines through proper regulatory procedures. He pointed out that issuing official rules orwA explanatory releases would have bwween a more effective way to classify digital assets under securities laws rather than using enforcement as the primary tool.

His remarks underscored ongoing challenges in defining digital assets within the legal framework. One of the key issues he raised was the inconsistent use of the Howey test, a standard established by the Supreme Court in 1946 to determine what constitutes an investment contract. These inconsistencies, he argued, have complicated the legal standing of cryptocurrencies and related assets.

Referencing his previous position as the California Corporation Commissioner’s Chief Advisor, Uyeda recalled a case in which he contended that a certificate of deposit with an additional bonus was an investment contract—a stance that was ultimately dismissed by the court.

He further noted that the legal sector is divided on how to interpret investment contracts under the Howey test. While some courts emphasize proportionate profit distribution and the pooling of investor funds, others adopt a more expansive stance that emphasizes shared risk. Disagreements also persist on whether an investor’s profit must result from the promoter’s ongoing efforts or if actions taken before the actual sale are enough to meet the standard.

Uyeda acknowledged that judicial opinions naturally vary depending on case specifics. He pointed out that in past instances of regulatory ambiguity, the SEC provided guidance to address gaps. He suggested that a similar approach should have been applied to digital assets rather than leaving the industry in a state of regulatory uncertainty.

The roundtable talks reinforced the urgency for the Commission to rethink its strategy regarding crypto regulations. The call for structured policymaking over-reliance on legal battles is particularly relevant as the industry evolves. Clear and well-defined regulations will enable the crypto sector to grow responsibly while protecting investors.

The industry will be keenly monitoring the task force’s work as it gets underway in the hopes that Uyeda’s support of openness and rule-based governance will result in significant adjustments to the regulations governing digital assets.

Key industry players like Bit Mining Ltd. (NYSE: BTCM) will be awaiting any regulatory guidance that the SEC publishes in order to ascertain whether or not they need to modify their long-term plans.

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