Original | Odaily
Author | jk
On March 20, 2025, local time in the United States, the U.S. Securities and Exchange Commission (SEC) issued a statement, clearly stating that crypto mining activities based on the Proof-of-Work (PoW) mechanism do not constitute the issuance or sale of securities and therefore do not need to be registered under the Securities Act. This stance may provide a legal basis for the future approval of PoW token (such as Litecoin) ETFs, reducing compliance barriers.
SEC: PoW Mining Does Not Involve Securities Regulation
The Division of Corporation Finance of the SEC stated in the March 20 statement that PoW mining, including self or solo mining and mining pool mining, does not meet the definition of "securities" under the Securities Act of 1933 and the Securities Exchange Act of 1934, and therefore does not require registration.
This determination covers the two main PoW mining methods:
Self or Solo Mining - Miners use their own computing resources for mining and receive rewards according to the protocol rules.
Mining Pool - Miners share computing power to increase the probability of mining success and receive rewards proportional to their contributions.
According to the statement, "protocol mining" is defined as participating in the consensus mechanism of a public permissionless network by contributing computing resources and receiving rewards in the form of crypto assets (Covered Crypto Assets) generated by the network protocol. The SEC emphasized that whether it is solo mining or joining a mining pool, the rewards received by miners come from their own computing resource contributions, rather than "relying on the efforts of others".
Howey Test: PoW Mining Rewards Do Not Constitute "Investment Contracts"
The SEC's analysis is based on the Howey Test, which determines whether a financial activity constitutes an investment contract. The Howey Test requires that the following conditions be met: investors invest money, and their reasonable expectation of profits depends on the efforts of others.
The SEC explicitly stated in the statement that the income of PoW miners comes from their own computing power contributions, rather than the operational activities of third parties, and therefore does not meet the definition of an "investment contract".
Even if miners join a mining pool, the SEC believes that miners are still using their own computing resources to compete for rewards, rather than relying on the management of the pool operators, and therefore do not constitute securities transactions:
When miners combine their computing resources with other miners to increase the likelihood of successfully mining new blocks on the network, the miners do not expect their profits to come from the entrepreneurial or managerial efforts of others. By adding their own computing resources to the pool, miners are merely performing an administrative or ministerial activity to maintain network security, verify transactions, add new blocks, and receive rewards. Furthermore, any expectation of profit by the miners is not derived from the efforts of third parties (such as pool operators). Even when participating in a mining pool, individual miners still rely on their own computing power contributions to solve the crypto puzzles and validate new blocks.
Furthermore, whether miners engage in solo (or self) mining or mining as part of a pool, the nature of protocol mining does not change under the Howey Test analysis framework. In the circumstances described in this statement, protocol mining remains an administrative or ministerial activity. Additionally, the primary responsibilities of mining pool operators in utilizing the computing resources of participating miners to operate the pool are also administrative or ministerial in nature.
Although some activities of pool operators may benefit the group of miners, these efforts are not sufficient to meet the "efforts of others" requirement in the Howey Test, as miners primarily rely on their own and other pool members' combined computing resources to generate profits. Therefore, miners' participation in a pool is not based on the expectation of being able to passively profit from the activities of the pool operators.
The SEC believes that the role of mining pool operators is primarily "administrative or ministerial" rather than investment management. Even if the operators coordinate miner computing power, manage hardware, and distribute rewards, these actions are not sufficient to meet the "efforts of others" core element of the Howey Test.
In other words, the SEC believes that maintaining the network and receiving rewards come from "the efforts of computing power and automation" rather than "the efforts of others", and miners and pool managers are merely providing computing power or management services. It's like a programmer developing an automated program and selling it to others for a periodic subscription fee, which is considered a service fee, rather than investing in the company that developed the program and receiving periodic interest, which would be considered a security. Therefore, the SEC has determined that PoW mining is not subject to securities law regulation.
What if Mining Activities Were Considered Securities?
If mining activities were considered securities, we would see a series of negative impacts:
First, miners may need to register with the SEC and comply with securities regulations. Under the Securities Act of 1933, any activity involving the issuance of securities must be registered or meet specific exemption conditions. If mining is considered a securities issuance, then all miners (whether individual or pool) may be required to register with the SEC, submit periodic financial reports, and undergo stricter compliance reviews. This would not only significantly increase the operating costs of miners, but could also lead to small miners being forced out of the market due to their inability to meet compliance requirements, further exacerbating the trend of mining centralization.
Secondly, exchanges may not be able to freely list PoW tokens. If mining rewards (such as Bitcoin and Litecoin) are viewed as securities by the SEC, any trading platforms involved with these assets may be required to register as securities exchanges or alternative trading systems (ATS). This would significantly impact the operating models of existing crypto exchanges, potentially forcing them to delist PoW tokens or strictly limit the identity of trading users (e.g., only allowing accredited investors to participate).
Furthermore, institutional investor participation may be restricted. Currently, the approval of Bitcoin ETFs has provided a compliant path for institutional investors to enter the crypto market. However, if PoW mining is defined as a securities transaction, this could affect the legality of existing ETFs and make it more difficult for future ETF applications based on PoW tokens (such as Litecoin) to be approved.
But these difficulties no longer exist after the SEC's statement.
May Pave the Way for PoW Crypto ETF Approvals
The SEC's clarification that PoW mining does not constitute securities issuance may pave the way for the future approval of PoW crypto ETFs (such as Litecoin ETFs). Previously, the SEC has approved Bitcoin spot ETFs but has not yet approved spot ETFs for other PoW tokens (such as Litecoin).
The SEC's clear distinction between the regulatory logic of PoW and PoS may suggest its special positioning of PoW networks - "miner rewards are considered service fees, not investment contract earnings".
Litecoin (LTC) is one of the most representative PoW tokens, with a network that uses a PoW mechanism similar to Bitcoin. Since the SEC has excluded PoW mining from the definition of securities in its statement, this means that the legal uncertainty around Litecoin and other PoW assets has been reduced, providing a clearer regulatory basis for ETF approvals. Market analysts believe that the SEC's stance may indicate that the approval prospects for Litecoin ETFs and other PoW token ETFs have further improved.
Once PoW token ETFs are approved, institutional investors will be able to invest in PoW crypto assets through compliant channels, further driving market liquidity and maturity.
Currently, the market is closely watching the SEC's next moves, particularly whether it will take a more proactive stance on PoW asset ETF applications. If PoW token ETFs such as LTC are successfully approved, it will mark further clarification of the SEC's regulatory framework for PoW crypto assets, and may drive more traditional financial institutions to enter the crypto market. Odaily will continue to report on this.
