Can the SEC Regulate Bitcoin??

The SEC’s jurisdiction generally encompasses either (i) a security or (ii) a transaction involving a security or securities-related activity. (SEC, Regulation of Internet-Based Fraud). Applying the Howey test to Bitcoin is not identical to applying the Howey test to a Bitcoin-funded investment scheme; each presents different questions. (SEC, Question 3).

The CFTC treats Bitcoin, Ether, and Litecoin as commodities. (CFTC, Regulation of Spot Markets). Along the same lines, the SEC’s response to Question 3 in its FAQ (“What does this mean for the average person?”) is: “As the SEC’s supervisory jurisdiction is limited to securities, the SEC does not have general supervisory jurisdiction over spot Bitcoin transactions that are not connected to any security.” (SEC, Question 3). The SEC’s authority is grounded in the Securities Act of 1933 and the Securities Exchange Act of 1934. (SEC, About).

Additionally, in 2018, then-Director of the SEC’s Division of Corporation Finance William Hinman addressed the SEC’s position on Bitcoin in a speech entitled “Digital Asset Transactions: When Howey Met Gary (Plastic),” in which he said, “With respect to Bitcoin, the Commission’s position is that Bitcoin transactions are not securities transactions.” (Hinman, “Securities Law and the Digital Assets,” June 2018). In the SEC’s recent enforcement action against Coinbase, among the thirteen digital assets listed as securities, Bitcoin was not listed. (SEC Complaint, SEC v. Coinbase).

Although this seems clear, we are mindful of the disclaimer Hinman included in the introduction of his speech where he stated, “I am speaking here today in my personal capacity, as not a spokesperson for the Commission and as not reflecting the Commission’s official position.” (Hinman, “Securities Law and the Digital Assets,” June 2018). Thus, while it would be an incorrect statement to say that “the SEC has said that Bitcoin is not a security,” the statements of the SEC’s enforcement officials suggest a similar conclusion.

When Does a Bitcoin Arrangement Become a Security?

The statutory definition of “security” includes, among other enumerated instruments, any “investment contract.” (15 U.S.C. Section 77b(a)(1)). Under the U.S. Supreme Court’s 1946 investment-contract decision in SEC v. W.J. Howey Co., an investment contract (and thus, a security) requires (i) the investment of money, (ii) in a common enterprise, (iii) with a reasonable expectation of profits, and (iv) arising from the efforts of others.

Since this test describes a category of arrangements (rather than establishing the definitive characteristics of an asset) applying the Howey test to any given cryptocurrency transaction requires an individualized analysis of the transaction’s facts and circumstances. (Hinman, “Securities Law and the Digital Assets”). Since a crypto-asset’s properties are not inherently linked to theHowey test, it also takes a transaction-specific analysis to distinguish a non-security crypto-asset from a security crypto-asset in any given case. Thus, while the same cryptocurrency might be used in a non-security crypto-transaction in one case, the same cryptocurrency could be used in a security crypto-transaction in another case. (Hinman, “Securities Law and the Digital Assets”). This makes it easy to make intuitive, but incorrect, assumptions about whether a given crypto-asset is a security.

This is particularly true regarding Bitcoin. Since the CFTC treat Bitcoin, Ether, and Litecoin as “commodities” rather than “securities,” it would be a mistake to assume that any Bitcoin-related transaction involving the commodity Bitcoin must be excluded from securities laws. While a Bitcoin transaction simply involving the commodity Bitcoin may not constitute a security transaction, separate and independent Bitcoin investment contracts still qualify as securities.

The same applies to decentralized finance, as well as initial coin offerings (ICOs) and token sales. This is one reason why decentralization cannot be considered a standalone Howey element and cannot be an automatic exemption from securities law (either before or after a token sale). However, Howey analysis will often take into account a project’s degree of decentralization, as decentralization can be a relevant factor in determining whether investors’ expected profits result from “the efforts of others.” (SEC, “Securities Law and the Digital Assets,” November 2017).

How Does the Howey Test Interact with Bitcoin?

The Howey test’s requirement of profits “arising from the efforts of others” is a central element of both the 1946 Supreme Court decision in Howey and the SEC’s guidance to the industry. Under the Howey test, an investment contract exists only if there is “a reasonable expectation of profits derived from the entrepreneurial or managerial efforts of others.” (SEC, “Securities Law and the Digital Assets,” November 2017). This phrasing includes profits derived both before and after an offering, and from a team of individuals as well as a single individual. By all means relevant to Howey, an investment contract does not exist if the profits are only from the efforts of the investors. The focus of the “efforts of others” element of Howey is the relationship between investors and the promoters or management of the investment. (Howey).

Who Regulates Spot Bitcoin Trading and Bitcoin Derivatives?

Cryptocurrency trading platforms in the U.S. often fall under both the SEC’s and CFTC’s jurisdiction. The Exchange Act requires an exchange or trading platform to register if it offers or deals in securities. As a result, any platform that also lists securities will generally need to register with the SEC under the Exchange Act. However, if a trading platform only handles Bitcoin and other assets that are not considered securities, it may not need to register with the SEC.

The CFTC has jurisdiction over any and all Bitcoin futures contracts, options, swaps, and other Bitcoin derivatives.

Under Section 6(c)(1) of the Commodity Exchange Act (CEA) and CFTC Rule 180.1, the CFTC has jurisdiction to pursue enforcement actions in cases of fraud and manipulation involving spot commodities markets.

Not all spot-market Bitcoin platforms need to register with the CFTC. As noted above, even though the CFTC treats Bitcoin as a commodity, this does not mean that every spot market platform handling Bitcoin must register. However, platforms that are considered to be acting as “commodity contractual markets” or “swap execution facilities” must register.

If a platform also lists securities in addition to handling spot Bitcoin trading, it must comply with the SEC’s Regulation ATS, which regulates Alternative Trading Systems. If it is primarily operating as a securities exchange, it must comply with the Exchange Act.

As SEC Chair Gary Gensler noted in testimony before the House Committee on Financial Services in 2021, at the time, there was no registration framework for cryptocurrency exchanges. Since then, however, multiple steps have been taken toward implementing a framework for crypto platforms.

Is There More Information about Who Regulates Which Side of the Bitcoin Market?

For more detailed information about the SEC and CFTC’s regulatory authority over spot Bitcoin trading, Bitcoin derivatives, and related digital assets, we recommend reviewing the following:

• CFTC, “Guidance regarding CFTC Rule 180.1”
• CFTC, “Regulation of Spot Markets”
• Gary Gensler’s testimony before the House Committee on Financial Services (February 2021)
• SEC, “Regulation of Internet-Based Fraud”

How does SEC oversight apply to spot Bitcoin ETPs?

In January 2024, the SEC approved exchange rule change requests for 11 different spot Bitcoin ETPs. Under Section 19(b) of the Exchange Act, these requests apply to the “proposed rule changes for self-regulatory organizations (SROs) including… national securities exchanges.” While the SEC approved the exchanges’ proposals to list spot Bitcoin ETPs, it expressly denied the exchanges’ requests to determine that the spot Bitcoin ETPs were “required to register under the Securities Act.” (SEC Press Release “SEC Approves Spot Bitcoin ETPs,” January 10, 2024).

Ultimately, the shares of these spot Bitcoin ETPs themselves are securities, even though the underlying asset, Bitcoin, is not. Because the underlying asset is a commodity, not a security, the SEC’s approval for exchanges to list the ETPs does not grant it oversight of the underlying Bitcoin. The SEC’s oversight pertains only to the ETP shares themselves (i.e., the investment securities), which is a fundamentally different oversight from the one it exercises over commodity Bitcoin.

Along the same lines, the spot Bitcoin ETP issuers registered their share offerings under the Securities Act but were not required to register as companies under the Investment Company Act. The registration of the share offerings confirms that the offerings were securities, but this does not mean the ETPs’ holdings, namely Bitcoin, are securities.

Ultimately, the SEC’s decision to approve spot Bitcoin ETPs signifies that it has determined that Bitcoin is not a security and that issuers are not required to register as companies under the Investment Company Act. Registering share offerings under the Securities Act establishes that the offerings are securities without necessarily making the underlying holdings securities.

Todd Spodek is the managing partner of Spodek Law Group, a second generation criminal defense firm that has been practicing since 1976.

Which Bitcoin products can trigger SEC jurisdiction?

Generally, Section 5 of the Securities Act requires the registration of all securities offerings unless an exemption applies. In situations where an offering is not exempt, then the offering will be unlawful, and the SEC may impose civil penalties. The SEC’s jurisdiction applies to Bitcoin-related activities and businesses that offer, sell, or otherwise transact in cryptocurrency securities. Examples of these activities include:

• When serving as an investment adviser for others’ digital assets, crypto investment advisers may owe fiduciary duties and, if subject to registration, may be required to register with the SEC under the Investment Advisers Act.
• Generally, managed Bitcoin-mining contracts will satisfy the Howey test if the parties to the contract depend on the mining promoter’s operations and efforts. (Howey).
• As part of its analysis under the Reves test for notes, the SEC may determine that a Bitcoin lending obligation constitutes a “note” and is therefore a security. (Reves).
• Generally, simple safekeeping of a customer’s Bitcoin does not, by itself, create an investment contract. While safekeeping and custody are separate from investing in a company, the SEC may have jurisdiction over Bitcoin transactions in cases where a third party is acting as a custodian or broker. (Howey).
• Generally, interests in pooled Bitcoin funds may satisfy the Howey test if holders have a reasonable expectation of profits that will depend on the mining promoter’s management and operations of the fund. (Howey).
• Under Section 15(a) of the Exchange Act, unregistered brokers are generally prohibited from effecting transactions in securities. This prohibition applies to brokerage services involving cryptocurrency securities as well. (Exchange Act).

What happens when a Bitcoin product violates securities laws?

I. Anti-Fraud Enforcement (Securities Act Section 17(a) & Exchange Act Section 10(b) / Rule 10b-5)

The SEC can take enforcement action against fraudulent offers or sales of Bitcoin investment contracts under both Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, read in conjunction with SEC Rule 10b-5. Section 17(a) prohibits the use of “any device, scheme, or artifice to defraud” or any “untrue statement of a material fact” in the offer or sale of securities. Section 10(b), “in connection with any purchase or sale of any security,” prohibits the use of “any manipulative or deceptive device.” These anti-fraud provisions are extremely broad and can cover a wide range of conduct. Notably, on June 6, 2023, the SEC filed a complaint against Coinbase in which it alleged violations of several of these anti-fraud provisions.

II. Injunctive Relief (Securities Act Section 20(b) & Exchange Act Section 21(d)(1))

Under Section 20(b) of the Securities Act and Section 21(d)(1) of the Exchange Act, the SEC has the authority to seek injunctive relief in federal district court. If approved, this injunction will enforce a cease-and-desist order on the alleged violation, that is, the violation of a securities law or rule by an issuer, promoter, broker, or other participant in the securities market. If the SEC identifies evidence of a potential for irreparable harm to the public or investors, it may also seek a temporary restraining order.

III. Civil Monetary Penalties (Securities Act Section 20(d) & Exchange Act Section 21(d)(3))

Under Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act, the SEC can seek civil monetary penalties. This includes penalties for any individual or business that “directly or indirectly” commits a violation. “Directly or indirectly” includes individuals and entities that aid and abet the main violation, including consultants, underwriters, brokers, and executives who were aware of or participated in the violation. The amount of civil monetary penalties that the SEC can seek is determined based on either statutory tiers (if the violation is a separate offense) or discretionary assessments based on the financial gain or loss involved.

IV. Disgorgement of Ill-Gotten Gains (Exchange Act Section 21(d)(7))

Under Section 21(d)(7) of the Exchange Act, the SEC can also pursue “disgorgement of ill-gotten gains” (i.e., profits) from fraud, illegal securities sales, or other violations. While the U.S. Supreme Court has limited the SEC’s authority to obtain restitution and disgorgement in some cases, Liu v. SEC, 591 U.S. 71, 140 S. Ct. 1936 (2020) This is in addition to the civil monetary penalties described above.

Did the 2025 Policy Shift Change Bitcoin Securities Law?

Since Paul Atkins assumed the position of SEC Chair, he has emphasized a commitment to “clear and consistent” crypto enforcement and has announced the new administration’s overarching cryptocurrency policy. As Atkins has explained:

“The SEC will be a rulemaking agency. I have a great deal of respect for the work that our staff has done but our leadership will be about: (i) rulemaking, (ii) interpretation of statutes in the context of the 2025 digital asset environment, and (iii) using the relief and exemption authority available to the agency that’s not being utilized today. The administration will be one of rulemaking and interpretation and utilizing the relief and exemption authority. This is in a world where some folks think this is an issue of policy and we think that rulemaking is exactly how we should move forward.”

But while the new administration has said it would focus its approach on rulemaking and interpretation, a comprehensive crypto-framework had not been adopted as of August 2025. This has ushered in an interregnum for crypto-assets, with the new administration’s cryptocurrency policy announced yet to be implemented, and the previous administration’s cryptocurrency policy of “enforcement through litigation” effectively ended.

A comprehensive crypto-framework would provide much-needed clarity for businesses and investors, but, in the absence of one, courts have been increasingly unable to answer these questions. The dismissal of the Coinbase case left the securities question in the air, as no appellate court had yet determined whether a given asset or product is a security or not. And in 2025, the SEC dismissed its cases against Binance, Dragonchain, Consensys, and several others. This has further stymied efforts to find answers to many of the industry’s most pressing legal questions.

The public’s uncertainty is compounded by the SEC’s ongoing enforcement efforts. In discussing his enforcement philosophy, Chair Atkins said, “While there has been some political talk of the SEC stepping back from enforcing the law, that will not happen. For those that have gone astray in their business model and a result of this, it is our obligation to be willing to protect those that have bought into this and to prevent others from making mistakes... we will continue to prioritize the most egregious cases of fraud, deceit, market manipulation, and market disruption.”

It also takes important knowledge to distinguish between statements and findings of law in the cryptocurrency industry. For example, SEC staff reports, official speeches, guidance, no-action letters, and letters to the market do not have the force and effect of law. Similarly, settlements in SEC proceedings and federal court do not create judicial precedent, unless a court actually adjudicates the case’s merits on the record.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 212-300-5196 to speak with our team.