SEC Digital Asset Regulation: Enforcement History and the Path Forward

Overview

The U.S. Securities and Exchange Commission is the federal agency with primary jurisdiction over the offer, sale, and trading of securities in the United States. Its claim to digital asset jurisdiction rests on the Howey test — the four-part analysis derived from the Supreme Court’s 1946 decision in SEC v. W.J. Howey Co. — which defines an “investment contract” (a form of security) as an investment of money in a common enterprise with a reasonable expectation of profits predominantly from the efforts of others. The SEC has applied this test to hundreds of digital assets, finding the majority to be unregistered securities, and has brought more than 100 enforcement actions against digital asset issuers, exchanges, and intermediaries since 2018.

The period from 2018 to 2024 was characterized by enforcement-led regulatory development — the SEC established its interpretive positions through court filings and enforcement orders rather than through formal rulemaking. The appointment of Paul Atkins as SEC Chair in early 2025, and the concurrent establishment of the Crypto Asset Task Force, signals a strategic shift toward providing clearer regulatory frameworks through guidance and rulemaking rather than litigation.

Jurisdiction: Investment Contracts and the Howey Test

The SEC’s digital asset jurisdiction flows from the Securities Act of 1933 and the Securities Exchange Act of 1934, specifically the definitions of “security” which include “investment contracts.” The Howey test’s four elements — investment of money, in a common enterprise, with an expectation of profits, from the efforts of others — have been applied by the SEC to Bitcoin (not a security, per SEC Chair Gensler’s statements), Ethereum (disputed; Ethereum’s transition to proof-of-stake introduced the “efforts of others” element), and the vast majority of other digital tokens (securities, per the SEC’s position in numerous enforcement actions).

The application of Howey to digital tokens has been contested on several grounds: some tokens are purely functional (utility tokens that provide access to a specific network service, not an investment vehicle), some are decentralized (if no identifiable party’s efforts drive returns, the “efforts of others” prong fails), and some are designed as commodities (Bitcoin and certain proof-of-work tokens, over which the CFTC claims concurrent jurisdiction).

For tokenized securities — tokens that represent economic interests in traditional financial instruments (funds, bonds, equity) — the securities law analysis is generally more straightforward: if the underlying instrument is a security, the tokenized version is almost certainly also a security, requiring registration or a valid exemption.

Major Enforcement Actions: 2018–2024

The SEC’s enforcement record is the primary interpretive tool for understanding its digital asset jurisdiction positions, given the limited formal guidance it produced during this period.

Ripple Labs (2020–2023): The SEC sued Ripple Labs and its executives in December 2020, alleging that XRP is an unregistered security sold in a $1.3 billion offering. Judge Analisa Torres’s July 2023 ruling was a split decision: XRP sold to institutional investors through contracts was a security (satisfying all four Howey prongs), but XRP sold on public exchanges to retail buyers was not (because retail buyers had no direct contractual relationship with Ripple and no reasonable expectation of profits from Ripple’s efforts specifically). The ruling created legal uncertainty — the same token can be a security in one context and not another — that has complicated post-ruling compliance analysis.

Coinbase (2023): The SEC sued Coinbase in June 2023, alleging that Coinbase operated an unregistered securities exchange, unregistered broker, and unregistered clearing agency by facilitating trading of tokens the SEC deemed securities. The suit targeted Coinbase’s core exchange business — not a peripheral activity — and represented the SEC’s most aggressive assertion of jurisdiction over a major U.S. digital asset exchange. The suit’s ultimate resolution (following the January 2025 SEC policy shift) resulted in the SEC dropping the case in 2025.

Terraform Labs / Do Kwon (2023): The SEC sued Terraform Labs and founder Do Kwon over the collapse of the UST algorithmic stablecoin and LUNA governance token, which wiped out approximately $40 billion in market value in May 2022. The Terraform case resulted in a $4.5 billion settlement — the largest in SEC crypto enforcement history — establishing the SEC’s position on governance tokens and algorithmic stablecoins as potential securities.

Binance (2023): The SEC sued Binance.com and its U.S. affiliate Binance.US in June 2023, alleging that Binance operated unregistered exchanges and that specific tokens traded on Binance were unregistered securities. The Binance enforcement action — combined with the concurrent DOJ criminal proceedings — represented the most comprehensive regulatory action against a digital asset exchange.

SAB 121 and SAB 122: Accounting for Crypto Assets

Staff Accounting Bulletin 121 (SAB 121), issued by the SEC in March 2022, created a significant regulatory barrier to bank custody of digital assets. SAB 121 required entities providing custody of crypto-assets to record a liability on their balance sheet equal to the fair value of the custodied assets, with a corresponding asset. For banks subject to capital requirements, this on-balance-sheet treatment of custodied crypto-assets created prohibitive capital costs — a bank holding $1 billion in crypto assets in custody would need to hold capital against $1 billion of balance sheet exposure, even though the assets belong to clients.

SAB 121 was widely criticized by banks and Congress. The House and Senate passed a Congressional Review Act resolution to rescind SAB 121 in 2024, which President Biden vetoed. SAB 122, issued by the SEC in January 2025 under the new administration, rescinded SAB 121 and replaced it with guidance requiring entities to apply existing GAAP standards to their crypto custody activities — removing the blanket on-balance-sheet treatment and opening the path for banks to expand digital asset custody services.

Crypto Asset Task Force (January 2025)

The SEC’s Crypto Asset Task Force, established in January 2025 under Acting Chair Mark Uyeda and continued under Chair Paul Atkins, is tasked with developing a coherent regulatory framework for digital assets through rulemaking and guidance rather than enforcement. The Task Force’s stated priorities include: clarifying which digital assets are securities and which are not, developing registration pathways for digital asset issuers and trading platforms, addressing the status of digital asset lending and staking, and engaging with industry on workable compliance standards.

For tokenized securities practitioners, the most relevant Task Force workstream is the transfer agent rulemaking — specifically, the question of whether existing transfer agent rules under Section 17A of the Exchange Act can accommodate digital securities, or whether amended rules are needed to address the specific characteristics of blockchain-based recordkeeping, atomic settlement, and smart contract-based compliance enforcement.

FIT21 Act: The Legislative Framework

The Financial Innovation and Technology for the 21st Century Act (FIT21), passed by the House in 2024, represents Congress’s most detailed attempt to legislate a comprehensive digital asset regulatory framework. FIT21 establishes a classification system distinguishing “digital commodities” (decentralized assets regulated by the CFTC) from “restricted digital assets” (securities regulated by the SEC), with a maturity-of-decentralization test determining which category applies.

FIT21 has not become law — Senate action remained pending as of early 2026 — but its framework has influenced the SEC’s Crypto Asset Task Force approach to digital asset classification.

Transfer Agent Rules for Digital Securities

The SEC’s existing transfer agent rules — which require registered transfer agents to maintain official shareholder records, process transfers, and meet financial responsibility and recordkeeping standards — apply to digital securities in their current form. Securitize’s SEC transfer agent registration demonstrates that the existing framework can accommodate digital securities. However, specific questions remain: what constitutes the “official record” of ownership when a blockchain ledger and a separate database both exist, how settlement finality on a blockchain interacts with transfer agent responsibility for record accuracy, and what cybersecurity standards apply to private key management by registered transfer agents.

Further Resources

• SEC.gov — Digital Assets
• Securitize Platform Profile
• Tokenization Licensing Overview
• Investment Product Structures