Breaking Up Is Hard To Do: Howey And The SEC's Crypto Asset Classification Guidance

Introduction and Background

On March 17, 2026, the Securities and Exchange Commission (the "SEC") and the Commodity Futures Trading Commission (the "CFTC") jointly issued an interpretive release titled "Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets" (Release Nos. 33-11412 and 34 105020, the "Interpretation").1 The Interpretation supersedes the 2019 Digital Asset Investment Contract Analysis Framework issued by the SEC staff (the "Staff") and reflects the materially changed regulatory posture of the SEC under Chairman Paul S. Atkins and the Crypto Task Force established in January 2025. In addition, in a sign of the new level of cooperation between the agencies, the CFTC stated that it will administer the Commodity Exchange Act (the "CEA") in a manner consistent with the Interpretation.

The Interpretation is the product of a sustained effort to move away from what several SEC commissioners and market participants had characterized as "regulation by enforcement," and toward a more structured, taxonomy based regulatory framework. Drawing on extensive public input from issuers, investors, market intermediaries, and legal practitioners, and informed by the President's Working Group on Digital Asset Markets report published in July 2025, the Interpretation represents the SEC's most comprehensive statement to date on the application of the federal securities laws to crypto assets.

The Interpretation is consequential in several respects. It explicitly identifies sixteen prominent crypto assets, including Bitcoin, Ether, SOL, and XRP, as "digital commodities" that the SEC has determined are not securities and provides a new five-category taxonomy for crypto assets. It provides interpretive clarity that several activities relevant to the crypto ecosystem, including protocol mining, protocol staking, liquid staking, wrapping, and certain airdrop activities, when conducted in the manner identified by the SEC, do not constitute securities transactions.

The Interpretation also introduces a novel framework based on the concept that, once a non-security crypto asset has been offered and sold in an investment contract transaction, all future transactions in that crypto asset, even if engaged in by parties otherwise unrelated to the original investment contract transaction, will be considered by the SEC to be securities transactions, subject to compliance with the full suite of federal securities law regulation (including not only the registration requirements and liability provisions found in the Securities Act of 1933, as amended (the "Securities Act"), but also the broker-dealer, clearing agency and other regulatory mandates found in the Securities Exchange Act of 1934, as amended), until the crypto asset "separates" from the investment contract.

This alert summarizes the principal positions taken by the SEC in the Interpretation and identifies a number of significant open questions that market participants and their counsel will need to navigate, with particular emphasis on the Interpretation's treatment of issuer representations and promises as the operative trigger for the investment contract status of transactions in non-security crypto assets. As with other kinds of break-ups, market participants may find navigating the separation of an investment contract from a related non-security crypto asset hard to do.

I. The Five-Category Taxonomy

The Interpretation classifies crypto assets into five categories based on their respective characteristics, uses and functions. Three of these categories are considered by the SEC not to be securities as a categorical matter. One category depends on the specific facts and circumstances of the instrument in question. The fifth category always constitutes a security.

A. Digital Commodities (Not Securities)

A digital commodity is a crypto asset whose value is intrinsically linked to the programmatic operation of a "functional" crypto system and subject to, presumably, third-party driven supply and demand dynamics, rather than to the essential managerial efforts of others.2 A digital commodity does not convey rights to future income, profits, or assets of any business enterprise. The SEC provides a non-exhaustive list of digital commodities, including Bitcoin (BTC), Ether (ETH), Solana (SOL), XRP, Cardano (ADA), Chainlink (LINK), Dogecoin (DOGE), Avalanche (AVAX), Polkadot (DOT), and Stellar (XLM), among others.

The Interpretation makes clear that governance rights and gas fee mechanisms inherent to a functional crypto system do not alter a digital commodity's non-security status. The SEC also confirms, consistent with recent Staff statements, that digital commodities may serve as the basis for futures contracts listed on CFTC-regulated markets. Any non security or non-stablecoin crypto asset—including each of the digital commodities named in the Interpretation—could qualify as a "commodity" under Section 1a(9) of CEA. The result is that CFTC jurisdiction will attach to these assets across a broad range of market activities, including derivatives markets, retail leveraged transactions, and anti-fraud and anti-manipulation enforcement in spot markets.

Importantly, the CFTC's anti-fraud and anti-manipulation authority applies to spot market transactions in digital commodities notwithstanding the current absence of comprehensive CFTC market oversight authority over spot markets generally. Market participants transacting in digital commodity spot markets—including both centralized and decentralized crypto asset exchange platforms—should be aware that this enforcement authority is not contingent on the existence of a derivatives nexus and that the CFTC has previously exercised it in connection with spot transactions involving digital commodities.

B. Digital Collectibles (Not Securities)

Digital collectibles include non-fungible tokens, meme coins, fan tokens, in-game items, and similar assets whose value derives from artistic, entertainment, social, or cultural significance. Digital collectibles do not convey any rights in a business enterprise, and their value is determined by supply and demand rather than by the managerial efforts of any issuer.

The SEC addresses meme coins directly, characterizing them as collectibles rather than securities notwithstanding their potential for significant price volatility.

Although digital collectibles as classified by the Interpretation are not securities, market participants should be aware that digital collectibles may, depending on their specific characteristics, qualify as "commodities" under the CEA, with the consequence that the CFTC's anti-fraud and anti-manipulation authority under the CEA may apply to transactions in such assets. The CFTC has previously exercised this authority in the context of crypto assets that were not securities and the Interpretation's classification of an asset as a digital collectible does not insulate market participants from CFTC enforcement with respect to fraudulent or manipulative conduct in connection with transactions in those assets. The Interpretation does, however, carve out one important exception: consistent with past SEC practice involving physical collectibles, fractionalized digital collectibles may constitute securities where the fractionalization entails essential managerial efforts from which purchasers would reasonably expect to derive profits.

C. Digital Tools (Not Securities)

Digital tools are functional-use tokens designed to perform a specific practical purpose, such as membership credentials, identity badges, event tickets, or title instruments. The SEC analogizes digital tools to physical utilities such as museum memberships or professional certifications. The expectation is that the value of these assets will derive from practical utility rather than from any expectation of profit, and they are not intended to convey any interest in a business enterprise. However, where a digital tool is created in a finite supply and promoted to emphasize that scarcity, it is possible that a court may look more deeply at the circumstances of any sale of such assets.

D. Stablecoins (Facts and Circumstances Dependent)

The Interpretation addresses stablecoins in two sub-categories. First, "payment stablecoins" issued by a "permitted payment stablecoin issuer" as defined in the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the "GENIUS Act")3 will be categorically excluded from the definition of "security" by operation of statute upon the GENIUS Act becoming effective. Issuers of such stablecoins are prohibited from paying any form of interest or yield to holders. Second, pending the effectiveness of the GENIUS Act, the SEC adopts the position set forth in the Division of Corporation Finance's April 2025 Staff statement and interprets that fully backed, non-yielding fiat-redeemable "Covered Stablecoins" do not constitute securities. Stablecoins that fall outside either of these categories remain subject to a facts-and-circumstances analysis under applicable law.

E. Digital Securities (Always Securities)

Tokenized versions of traditional securities, including stocks, bonds, and other financial instruments enumerated in the statutory definition of "security," are securities regardless of whether they are represented on-chain. The SEC notes that the structure of tokenized securities may vary and that the rights conveyed to on-chain holders may differ materially from those of holders of the corresponding off-chain instrument.

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