SEC proposes new encryption rules while CLARITY bill is on hold

The U.S. Securities and Exchange Commission proposes new regulations on cryptocurrency regulation

The U.S. Securities and Exchange Commission (SEC) has announced proposed rule changes aimed at providing clearer regulatory treatment for certain cryptoassets that are considered investment contracts. The announcement comes as Congress failed to advance a major market structure bill before lawmakers entered a month-long recess, leaving the industry with overlapping regulatory approaches from agencies.

In a notice issued on Tuesday, the SEC said it was proposing a "clear and purpose-appropriate framework" for specific investment contracts involving crypto assets. The regulator described the proposal as a "customized securities issuance mechanism" designed to allow compliant issuers to raise capital while maintaining investor protection.

Core Points

The SEC's proposal would create a customized issuance path for certain crypto-related investment contracts, emphasizing investor protection obligations. There is no "innovation exemption" in the proposal-some market participants had expected it to be included in tokenization or crypto-related equity products. The SEC outlined token issuance limits under the exemption clause and noted that issuers are required to provide financial statements and ongoing reporting. After the proposal is published in the Federal Register, there will be a 60-day comment period. The announcement comes as progress on the Digital Asset Markets Clarity Act (CLARITY) stalled, raising concerns that the regulatory landscape could continue to be fragmented.

SEC proposes customized securities issuance mechanism for certain crypto assets

The SEC said the rules are intended to provide a "clear and purpose-appropriate framework" for "certain investment contracts involving crypto assets." The agency believes this approach will provide issuers with a clearer path to compliance while maintaining investor protection.

SEC Chairman Paul Atkins linked the SEC's rule-making efforts to the need for legislation, arguing that a lasting "code of conduct" requires congressional action rather than relying on institution-driven tinkering that could be overturned later. In comments accompanying the proposal, Atkins said legislation remained "indispensable" to enable regulatory guidance to withstand future tests.

No innovation exemptions-New rules come amid a standstill in the CLARITY Act

A noteworthy flaw in the SEC proposal is the "innovation exemption" that some observers had expected, including in reports about possible exemptions for innovation structures related to tokenized stock trading. The absence of this exemption makes the SEC's new approach appear more gradual: The proposal is not intended to reduce the risk of classification of a wider range of crypto-related products, but rather focuses on providing a structured securities issuance path if the SEC determines that there is an investment contract risk.

Timing is also crucial. The SEC's notice follows the U.S. Senate's failure to advance the CLARITY bill. The bill has been widely discussed and aims to clarify how federal agencies will supervise and regulate cryptocurrencies. As the bill failed to advance, agencies received less congressional guidance and increased room to develop their own frameworks-which often created uncertainty for market participants.

Waivers, token issuance limits and reporting obligations

Under the proposal, the SEC will provide exemptions to entities that issue tokens within specified limits. The notice describes the limits: a maximum of $5 million for token issuance over four years and a maximum of $75 million for 12 months.

In addition, the SEC said it will include a safe harbor clause designed to exempt certain cryptocurrencies from being classified as "investment contracts." While the details of how the safe harbor applies are critical to decisions by investors and issuers, the goal of the SEC statement is to reduce classification uncertainty for at least some asset classes.

The SEC also noted that token issuers will be required to provide financial statements and will be subject to ongoing reporting requirements. For issuers that are evaluating how to structure token offerings to reduce regulatory risks, these ongoing information disclosure obligations may be as important as established issuance limits.

The SEC's proposal is now open to public feedback: The agency said the public will have 60 days to comment after the rules are published in the Federal Register.

Regulatory coordination pressure: SEC proposal predates CFTC cryptocurrency meeting

The SEC's move comes ahead of a planned meeting by the U.S. Commodity Futures Trading Commission (CFTC) on cryptocurrencies, artificial intelligence and the forecasting market. The CFTC has previously said it plans to work in areas where regulatory action can "complement" future congressional legislation.

This chronological sequence highlights the current dynamics of cryptocurrency regulation in the United States: When Congress failed to provide comprehensive market structural reforms, agencies filled the void-sometimes in ways that made issuers and exchanges unpredictable and difficult to map into a unified national framework.

SEC Chairman Atkins was scheduled to give a speech at the Wyoming blockchain seminar on Tuesday, but it was canceled due to an announcement from his agency. At the same time, White House cryptocurrency adviser Patrick Vitter told attendees at the event that if Congress fails to make progress on the CLARITY bill, regulators may take more aggressive action-another signal that even without new regulations, the regulatory environment may continue to change.

Senate schedule is tight, CLARITY bill's future unclear

As the SEC moves forward with its own rulemaking, the prospects of CLARITY bill depend on tight legislative window. Before the Senate adjourned for the August state work period, Majority Leader John Thune submitted a closing debate motion to consider the CLARITY bill when lawmakers return in mid-September.

After the August recess, senators reportedly had only 14 meeting days before another recess before the November election. If a full house vote cannot be ensured during this period, the Senate will have 22 meeting days before the new members of Congress take office in 2027. This schedule could affect the speed at which the CLARITY bill is resolved during this Congress-and even determine whether it can be resolved.

Points for follow-up attention

Issuers and investors should focus on how the SEC defines the scope of its safe harbor, the specific mechanism for token issuance caps, and what ongoing reporting the proposal will require. Given the uncertainty surrounding the future of the CLARITY bill and the approaching comment period, the next signal to watch is how industry participants will respond through filings and whether the CFTC's upcoming agenda will further clarify how agencies will jointly regulate the cryptocurrency market.