Regulatory Interpretation: US SEC Cryptocurrency Working Group: Towards a Clearer Regulatory Framework

Ultimately, with the improvement of the regulatory environment, the crypto currency industry will be able to develop in a more transparent and predictable environment, providing more innovative opportunities for global investors.

Author: Beosin

Cover: Photo by Steve Harvey on Unsplash

On February 4, 2025, the U.S. Securities and Exchange Commission (SEC) released the work plan of the Crypto Currency Working Group, marking an important transformation in the regulation of crypto currencies in the United States. This working group aims to bring more clarity to the regulatory framework for crypto assets, while maintaining support for innovation. Over the past decade, the SEC's performance in crypto currency regulation has often been criticized, mainly due to the lack of clear rules and uncertainty in enforcement. The newly established working group hopes to guide the crypto currency industry towards a more mature and standardized future through a more systematic and transparent approach.

This article will provide a detailed interpretation of the goals, key initiatives, and potential impact of the SEC's newly established Crypto Currency Working Group on the crypto currency industry and market participants, particularly the proposal for a cross-border sandbox, which could provide new opportunities for global crypto projects.

Background and Core Mission of the SEC Crypto Assets Working Group

Since the birth of Bitcoin, the SEC has been in contact with the Crypto Asset industry for more than a decade. From receiving the first application for a Bitcoin exchange-traded product in 2013, to the DAO report issued in 2017, and a series of enforcement actions and policy statements, the SEC's Crypto Asset regulatory actions have been scattered and ambiguous. Although the US securities market is widely praised for its regulation and transparency, the SEC has never been able to establish a systematic regulatory framework for this emerging field of Crypto Assets. With many Crypto projects in legal gray areas, the compliance costs and uncertainties for industry participants have increased, which has had a negative impact on the healthy development of the market.

Against this background, the SEC has announced the establishment of a Crypto Assets Working Group, aiming to systematically address the legal uncertainties facing the industry and enhance the transparency and predictability of regulation. The primary task of the working group is to resolve the issue of the legal status of Crypto Assets under securities laws, clarifying which Crypto Assets should be classified as securities and which should not, and then formulate corresponding regulatory rules based on this.

The core mission of the working group includes:

1. Clarifying the legal status of Crypto Assets: Determining which Crypto Assets are securities and which are not.

2. Cracking down on fraudulent activities: Ensuring market fairness and preventing fraudsters from using Crypto Assets for illegal activities.

3. Promoting innovation: Providing more room for experimentation and innovation in the industry, while protecting investors.

In the article, Commissioner Peirce proposed six guiding principles for the working group, which lay the foundation for future regulatory work:

1. Independence: The working group's work will be based on the SEC's statutory authority, while collaborating with other regulators.

2. Gradual progress: The complexity of Crypto Asset regulation requires time, and the working group will advance in an orderly and lawful manner.

3. Balancing freedom and protection: While encouraging innovation, ensure that the market is not eroded by fraudulent activities.

4. Compliance and flexibility: The working group will utilize existing exemptions and other tools to provide a compliance path for the industry.

5. Efficient application processing: The working group will accelerate the processing of exemption applications, no-action letters, and registration statements, but will require applicants to provide detailed legal analysis and technical support.

6. No-endorsement policy: The SEC will not provide official endorsement for any cryptocurrency or token, and investors must bear the risks themselves.

Clarify the regulatory path to promote industry compliance and innovation

The working group will work in several areas, including: clarifying whether different types of cryptocurrencies are securities, which is key to resolving other regulatory issues; providing legal certainty for specific cryptocurrency projects through no-action letters; exploring temporary exemptions for token offerings and simplifying the registration path (such as Regulation A and crowdfunding rules); providing compliant cryptocurrency custody solutions for investment advisors and brokers; clarifying whether crypto lending and staking are subject to securities laws and developing relevant rules, etc.

An important initiative of the SEC Cryptocurrency Working Group is the consideration of launching a Cross-Border Sandbox. The core idea of this proposal is to provide a controlled experimental environment for international cryptocurrency projects, where they can conduct limited trials under different countries' regulatory frameworks. The introduction of this proposal is expected to provide greater flexibility for cryptocurrency projects globally, especially in addressing the regulatory requirements of different countries and regions, and effectively promote innovation.

The Cross-Border Sandbox has two main advantages:

1. Global collaboration and experimentation: Due to the decentralized and global nature of cryptocurrencies, many cryptocurrency projects need to operate in multiple countries and regions. Existing single-country regulatory frameworks often cannot effectively address the challenges of cross-border cryptocurrency projects. Through the Cross-Border Sandbox, regulators can collaborate with international counterparts to explore viable regulatory solutions and provide more experimentation opportunities for global cryptocurrency projects.

2. Risk management: The Cross-Border Sandbox provides a controlled environment for cryptocurrency projects, which can promote cryptocurrency innovation while ensuring market stability and investor protection. It not only helps regulators better understand the innovative aspects of cryptocurrency technology, but also ensures the consistency and effectiveness of new regulatory measures globally.

The core tasks and challenges of cryptocurrency regulation

Although the establishment of the SEC Cryptocurrency Working Group has brought hope to the cryptocurrency industry, the challenges it faces are still immense. The SEC has clearly stated in its announcement that the development of a clear regulatory framework for crypto assets is not a one-time effort. The SEC has had multiple interactions with the cryptocurrency industry over the past decade, but each action has been fragmented, leading to uncertainty in the industry. Now, the working group's goal is to use a more systematic and comprehensive approach to address the following key issues:

1. Determining the security status of crypto assets

Whether crypto assets are securities is one of the biggest legal challenges facing many cryptocurrency projects. According to U.S. securities law, the definition of securities includes stocks, bonds, investment contracts, and the long-standing lack of clear standards on whether cryptocurrencies meet this definition. The SEC working group will focus on examining the nature of various crypto assets, attempting to classify these assets and provide specific regulatory measures. For example, certain tokens may be considered securities and need to comply with securities law requirements, while others may not meet the definition of securities and therefore not be subject to securities law regulation.

2. Compliance of crypto token issuance and trading

The issuance and trading of crypto tokens is one of the core businesses in the cryptocurrency industry, but due to the lack of clear rules, many projects face legal risks in this area. The SEC working group is considering providing a temporary tax exemption mechanism for token issuance, allowing issuers to provide specific information disclosure and ensure that this information is continuously updated to help investors make more informed decisions. At the same time, the working group also plans to review existing token exchanges and trading products, clarifying which exchanges meet regulatory requirements and which may face compliance issues.

3. Compliance of crypto lending and staking businesses

In recent years, crypto lending and staking businesses have become increasingly popular in the cryptocurrency market. However, whether these businesses are subject to securities law regulation, and how to legally and compliantly conduct them, is still an unresolved issue. The SEC working group stated that it will strive to provide more legal guidance for crypto lending and staking businesses, to ensure that these businesses comply with the relevant provisions of U.S. securities law, while also encouraging innovation.

The strategic direction and industry collaboration of the SEC working group

The strategic direction of the SEC Cryptocurrency Working Group is clear - to protect investors while encouraging innovation. The members of the working group stated that their goal is to provide a framework for the cryptocurrency market that meets regulatory requirements and is also conducive to industry development. This framework not only involves the SEC's responsibilities, but also requires cooperation with other regulators to ensure the global compliance of cryptocurrencies.

The working group particularly emphasizes that while promoting innovation, it will prevent the cryptocurrency market from becoming a breeding ground for fraudulent activities. The SEC has the ability to enforce against suspected fraudulent behavior, but for cases that are not within its jurisdiction, the working group can refer them to the relevant regulators or report to Congress. Ensuring the transparency and fairness of the market has always been the SEC's consistent goal.

Future outlook: The far-reaching impact of the SEC Cryptocurrency Working Group

The establishment of the SEC Cryptocurrency Working Group undoubtedly brings new opportunities to the cryptocurrency industry. With the proposal of the Cross-Border Sandbox, international cooperation and regulatory coordination will be key to future development. This not only can provide greater development space for global cryptocurrency projects, but also help solve the compliance challenges in the industry.

Although the SEC acknowledges that resolving existing issues is not an easy task, through collaboration with industry builders, investors, and other regulators, a clear and effective cryptocurrency regulatory framework can ultimately be developed. The SEC hopes that through this new working group, it can provide more specific rules for the cryptocurrency industry in the coming years to ensure the healthy development of the industry.

Ultimately, with the improvement of the regulatory environment, the cryptocurrency industry will be able to develop in a more transparent and predictable environment, providing more innovative opportunities for global investors.

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