Cryptocurrency Regulation SEC: Policies, Political Shifts and Lawsuits

Think crypto is a free-for-all? Well, that’s not the case — at least, not in the US. Cryptocurrency regulation SEC (Securities and Exchange Commission) decisions sway markets, influence projects, and set the pace for innovation — or stall it entirely. Whether it’s shaping how platforms like Binance and Bybit navigate US compliance or making headlines with moves on Bitcoin ETFs, the SEC’s hand is everywhere.

Is it safeguarding investors, stifling progress, or just trying to catch up? In this guide, I'll break down the SEC’s evolving crypto strategy, explore its biggest enforcement moments, and see what it all means for the future of digital finance. So, let's find out what the SEC is up to these days.

Did you know?

Want to get smarter & wealthier with crypto?

Subscribe - We publish new crypto explainer videos every week!

How to Invest in Crypto: 6 Rewarding Strategies (Animated)

SUBSCRIBE

ON YOUTUBE

What are Crypto Regulations?

Crypto regulations are the collection of laws and rules that determine how cryptocurrencies and related products are issued, sold, traded, and managed. In the simplest sense, they set the legal boundaries for who can create a token, how exchanges must operate, what disclosures are needed for investors, and how fraud or market abuse is prevented.

The goal of these regulations is to establish fair, transparent markets and to protect investors from the very real risks that come with an industry known for high volatility, frequent scams, and technical complexity that many average investors don’t fully grasp.

In the United States, crypto isn’t governed by one unified rulebook. Instead, it falls under a patchwork of existing financial regulations enforced by different agencies. For example, while the CFTC oversees commodities, the SEC is responsible for securities.

Table: US crypto regulators and their main areas of oversight

In this context, the SEC’s role tends to be broader in the crypto space, since many more financial instruments qualify as securities compared to others. So let me break down how it operates and how it determines compliance requirements.

SEC’s Role in Crypto Regulations

As you already may know, SEC is the abbreviation of Securities and Exchange Commission. The primary mandate of it is to protect investors, maintain fair and efficient markets, and facilitate capital formation.

In the crypto context, this means deciding when a digital asset is actually a security — a decision that triggers extensive obligations, including registration, disclosures, anti-fraud provisions, and often restrictions on who can invest.

Since the SEC is responsible for classifying and authorizing these assets and exchanges, it is often the key player in crypto regulation. For that reason, there are several areas that fall under the cryptocurrency regulation SEC. Let's start with the conditions under which an asset can be considered a security.

Classification of Cryptocurrencies as Securities

The SEC plays its most critical role in crypto by determining whether a digital asset should be treated as a security, and it does this mainly through the Howey Test. This test comes from a 1946 Supreme Court case and asks four main questions:

If all these elements are met, the SEC classifies the asset as a security, meaning it falls squarely under the agency’s jurisdiction. This is exactly why so many initial coin offerings (ICOs), staking services, and even some DeFi protocols end up on the SEC’s radar.

Yet many in the industry question whether relying on a framework built for orange groves in the 1940s makes sense for decentralized, blockchain-based ecosystems. Legal scholars, crypto executives, and even some SEC insiders argue that the Howey Test, while remarkably adaptable, struggles to address digital assets governed by distributed networks rather than a central managerial body.

Regulation of Cryptocurrency Exchanges

Many popular exchanges like Coinbase, Kraken, and Bybit face intense SEC crypto regulations. You see, under US law, any platform that facilitates trading in securities must register as a national securities exchange or fit into a specific exemption.

For quite a long time, the SEC argued that many of these crypto platforms list tokens that pass the Howey Test, which makes the exchanges unregistered and thus, illegal to operate. This was the core argument behind many lawsuits, especially the one against Coinbase. However, Coinbase accused the SEC of not giving clear guidelines. And apparently, it was a solid statement.

While some exchange-related lawsuits are still ongoing, the SEC ultimately decided to drop its charges against Coinbase, which gave the signals for a possible softening of its stance.

📚 Further Reading: Is Coinbase Legit?

I think Coinbase owes this outcome at least partly to perspectives like Teresa Goody Guillén’s crypto views and the “Crypto Mom” Hester Peirce’s task force under the Trump administration, both of which seem aimed at crafting clearer guidelines, which was the whole argument of Coinbase.

Well, let's not mix the topics for now. But don't worry, I’ll dive deeper into this political landscape a bit later in the article.

Custody of Digital Assets

For institutional investors, custody is a major regulatory hurdle. SEC rules require that client securities be held by “qualified custodians,” generally large banks or regulated trust companies. Applying this to crypto, with its unique risks around private keys, hacks, and technical mismanagement, remains a work in progress.

This is why platforms like Coinbase have established dedicated entities such as Coinbase Custody Trust, a New York-chartered trust company that operates as a qualified custodian under rigorous regulatory oversight, specifically designed to meet institutional custody standards.

Meanwhile, platforms like Kraken, which are closely monitored by US authorities, address custody concerns by keeping the vast majority of customer assets in cold wallets, isolated from online attacks. These reputable exchanges maintain 100% or even over-collateralized reserves, often verified through independent proof-of-reserves audits, and back customer assets with dedicated insurance funds to protect against operational failures or cyber incidents.

Previously, however, a major accounting roadblock made traditional institutions hesitant to engage in crypto custody. Under Staff Accounting Bulletin (SAB) 121,^[1] firms holding crypto on behalf of clients were required to record these assets as liabilities on their balance sheets. This imposed capital burdens similar to debts, effectively discouraging banks from offering crypto custody services.

The SEC crypto strategy under the Trump administration has since rescinded SAB 121, a pivotal change expected to open the doors for more banks and trust companies to enter crypto custody markets. Even so, strict operational, audit, and insurance demands continue to present challenges as the industry matures.

Initial Coin Offerings (ICOs)

ICOs have long been one of the biggest points of contention for the SEC. As I mentioned earlier, this is a top priority on their regulatory radar. Let’s start with the basics, then I'll give you the most famous example of this: the XRP case.

If a digital asset is deemed a security, the SEC has strict rules on how it must be registered before it can be legally offered or sold. Simply saying, “we’re selling a token” isn’t enough. The specifics of how it’s sold, to whom, and what’s promised all determine the regulatory obligations.

Not only that, there are also certain SEC cryptocurrency regulations that projects try to rely on. Most ICOs that want to stay within the law aim for one of these approaches:

• Regulation D: The most common route for private token sales. This allows offerings to accredited investors — people who meet certain income or net worth thresholds — without requiring full SEC registration. However, there are strict restrictions on how and when these tokens can be resold.
• Regulation S: This exemption applies when offerings are made entirely outside the United States, without directly targeting US investors. It sounds simple, but in practice, the SEC often digs into whether marketing materials, websites, or even social media campaigns indirectly appeal to Americans.
• Regulation A+: Often called a “mini IPO,” it allows companies to raise up to $75 million from the public under lighter SEC oversight, with capped investor amounts and ongoing reporting obligations.

But what if an ICO claims, “our token isn’t a security”?

In that case, this is entirely on them to prove it. The SEC usually takes the view that if investors expect profits that primarily come from the team’s efforts — not from their own use or participation — it’s an investment contract, and therefore a security that must be registered.

XRP crypto SEC appeal is a textbook example of this. Ripple Labs argued that XRP was simply a utility token meant for payments and cross-border transactions, not an investment. However, the SEC disagreed, pointing out how Ripple marketed XRP in ways that encouraged investors to expect significant future profits based on Ripple’s continued development and partnerships.

Ripple’s executives frequently highlighted XRP’s potential to appreciate in value as Ripple built out its ecosystem, exactly the kind of reliance on a promoter’s efforts that the Howey Test flags. This marketing narrative became a cornerstone of the SEC crypto lawsuit, framing XRP sales as unregistered securities offerings.

While parties came to a settlement, XRP is still facing a $125 million penalty as of July 2025, since the judge rejected the reduced fine amount. If you want to know what will happen next on this and more about SEC crypto regulations, you might want to subscribe to BitDegree’s daily newsletter.

Did you know?

Want to get smarter & wealthier with crypto?

Subscribe - We publish new crypto explainer videos every week!

What is a Rug Pull in Crypto? (Meaning + Examples)

SUBSCRIBE

ON YOUTUBE

Stablecoins

Stablecoins like USDC and USDT (Tether) now underpin much of the cryptocurrency market, serving as a critical bridge to dollar liquidity. But they also sit at the heart of some of crypto’s biggest regulatory debates.

But why does the SEC care so much about them?

It again comes down to investor protection and market integrity. Whenever a financial product is offered with the expectation of stability or yield, and especially if it relies on a company’s management to maintain its reserves properly, it can quickly enter securities territory under US law. That places stablecoins firmly under the SEC's crypto regulation umbrella—or at the very least, on its radar—especially when failures could ripple through the entire market.

The catastrophic collapse of TerraUSD (UST) in 2022 made this really clear. Around $40 billion in market value was lost almost overnight, which was used as a turning point for SEC cryptocurrency regulations.

📚 Read Further: Complete Story of LUNA & UST

In this SEC crypto lawsuit against Terraform Labs, it was argued that both the LUNA governance token and the algorithmic stablecoin UST were part of an unregistered securities scheme that misled investors.

In April 2025, after a trial closely followed by financial markets, a jury found Terraform and founder Do Kwon liable for multi-billion-dollar securities fraud, resulting in over $4.5 billion in penalties, which was one of the largest SEC crypto lawsuit judgments.

Meanwhile, the SEC crypto strategy under the Trump administration has taken a distinct turn. In January 2025, an executive order explicitly rejected the idea of a US CBDC, citing risks to privacy and private innovation, while simultaneously encouraging well-regulated, fully reserved, dollar-backed stablecoins.

There is even a dedicated task force under Hester Pierce crypto strategy, and it is now exploring tailored disclosure requirements and reserve attestations to prevent future Terra-like implosions without shutting down legitimate stablecoin innovation.

The Most Liked Findings

Looking for more in-depth information on related topics? We have gathered similar articles for you to spare your time. Take a look!

Cryptocurrencies

How to Buy XYZVerse: A Quick (yet Thorough!) Purchase Guide

Exchanges

MEXC Staking Explained: How to Earn Crypto Passively on MEXC

Cryptocurrencies

Will Floki Inu Reach $1? Breaking Down the Odds

Crypto ETFs

ETFs sit squarely inside the regulated securities markets, thus, fall directly under the cryptocurrency regulation SEC umbrella. When crypto ETFs began making headlines, the agency steps in to scan everything from market manipulation risks to how custodians secure the underlying assets.

For years, the SEC rejected spot Bitcoin ETF applications, arguing that crypto markets were too susceptible to fraud and lacked sufficient oversight to guarantee fair pricing. This caution frustrated many in the industry, who believed ETFs could help legitimize crypto and make it more accessible to mainstream investors.

However, just like other areas, this became more market-friendly too in terms of cryptocurrency regulation SEC. Several Bitcoin futures ETFs were approved, allowing investors indirect exposure through regulated derivatives markets. More recently, new spot ETF applications have gained traction as well, signaling that the SEC’s stance is evolving along with broader institutional adoption.

Pros

• Secure and reliable
• Accepts fiat currencies
• Lots of trading options

Main Features

• Reputable exchange
• Accepts fiat currencies
• Offers various trading options

Visit Site

Pros

• Accepts fiat currencies
• Simple to use
• Supports only trusted cryptocurrencies

Main Features

• A leading cryptocurrency exchange platform
• Best for all type investors
• Accepts fiat currencies

GET $200 REWARD

Pros

• Beginner-friendly
• Secure
• Decent trading and withdrawal fees

Main Features

• Crypto.com Visa Card
• Automated tools & bots
• Ecosystem synergy with CRO

UP TO 1 BTC IN CRO

Staking & Yield Farming Services

This is particularly an interesting point when it comes to cryptocurrency regulation SEC. You see, decentralized platforms like Uniswap, Aave, and staking or yield farming protocols enable people to lend, borrow, and earn interest directly on-chain.

📚 Related: Best Decentralized Exchanges

What I find interesting is that the whole point of Decentralized Finance (DeFi) is that, well, decentralization. The aim is to basically replace banks with protocols and smart contracts.

However, the SEC maintains that if there’s pooled capital with an expectation of profits stemming from the actions of identifiable developers or governance teams, it likely meets the Howey definition of a security. Thus, even a DeFi should comply with SEC crypto regulations.

For example, some DeFi exchanges like Uniswap have received subpoenas probing whether protocol development teams are still effectively acting as promoters, despite smart contracts running the transactions.

I guess we'll have to wait and see the answer in the future, since there are no SEC crypto lawsuit decisions made yet about DeFi protocols. On the other hand, the staking topic is really a struggle for centralized exchanges, too. You may have heard of the crypto lawsuit the SEC filed against Kraken, particularly about this.

In early 2023, the SEC forced the exchange to shut down its US staking program and pay a $30 million settlement. The SEC concluded that Kraken’s marketing led investors to believe their yields depended on Kraken’s expertise and management decisions — exactly the type of reliance the securities laws are designed to regulate.

Of course, the story didn't end here between Kraken and the cryptocurrency regulations of the SEC. However, the good news is that, despite all that happened between the parties, Kraken continues to offer its staking services in the US as of 2025.

📚 More About: Kraken Staking Guide

As you see from the examples, the cryptocurrency regulations of SEC have changed a lot over time. So let's break down what it looks like now, under the Trump regime.

SEC Crypto Strategy Under Trump

The Trump administration has reshaped the US regulatory landscape for digital assets in profound ways, steering it away from the aggressive crackdown style of past years toward a more innovation-centric approach.

Unlike earlier SEC regimes that were heavily reliant on enforcement, the current SEC crypto strategy under Trump emphasizes clear rules, lighter compliance requirements for innovators, and an ambition to solidify America’s leadership in the blockchain economy.

From the outset, President Trump’s crypto stance was sharply defined. A January 2025 executive order outright rejected the idea of a US CBDC, citing threats to financial privacy and risks of crowding out private innovation.

Instead, it explicitly endorsed well-regulated, fully-reserved, dollar-backed stablecoins as a preferred path. This pivot has made the US a striking contrast to China’s sweeping bans and the EU’s MiCA regulations, and set the stage for a more industry-friendly SEC.

At the heart of this evolving framework is the SEC’s Crypto Task Force, now led by Commissioner Hester Peirce. Her long-standing push for a balanced approach of proposing safe harbors and predictable compliance lanes is finally gaining traction, which has led people to call her "Hester Pierce, crypto mom."

The Task Force has been hosting public roundtables and working papers to develop tailored rules for everything from stablecoins to DeFi. This initiative is part of why recent SEC crypto lawsuit headlines have often ended not with crushing penalties, but with regulatory dialogues or outright case dismissals. In fact, under this new climate, many cases that once symbolized the SEC’s hardline stance have shifted dramatically.

As I mentioned earlier in the article, Kraken is a good example of the change in cryptocurrency regulation SEC. While it faced a long-running case, by 2025, no further penalties were pursued. Similarly, other major platforms like Coinbase and Gemini were also under the microscope, but the SEC has recently dropped or paused separate enforcement actions against them as well.

Of course, that doesn’t mean the SEC has completely softened or stopped caring about the ecosystem’s integrity. It simply reflects a rebalancing oversight while also fostering innovation in the blockchain industry.

That balance is shaped not only by Peirce’s drive for practical, innovation-friendly regulation, but also by critical voices captured in the Teresa Goody Guillén crypto debates. Unlike Peirce’s market-nurturing stance, Teresa Goody Guillén often zeroes in on the legal pitfalls of outdated standards like the Howey Test, warning that fuzzy rules can chill legitimate startups while doing little to stop fraud, which proves that Clarity Act in fact is on the move.

Meaning that, the SEC still continues to keep a close watch on platforms like Robinhood, especially for their marketing and custody of crypto assets. The SEC Robinhood crypto scrutiny ties directly into the agency’s core mission of protecting retail investors, especially given Robinhood’s growing popularity with first-time crypto traders.

After all that, if you still have some doubts about how much Trump actually supports crypto industry, let me remind you that his company created and launched Trump meme coin right before his inauguration.

📚 Learn More: How to Buy Trump Coin

How Other Countries Handle Crypto Regulation?

If you think the cryptocurrency regulation SEC maze is complicated, well, you're not wrong. But it’s not any simpler elsewhere. Most major economies have their own SEC-like agencies to regulate this somewhat new industry.

For instance, China relies on the People’s Bank of China (PBoC) and the China Securities Regulatory Commission (CSRC) to enforce its near-total ban on crypto trading and mining, steering the focus instead toward launching a central bank digital currency (the digital yuan). Meanwhile, Türkiye manages crypto oversight primarily through its Capital Markets Board (CMB) and the Central Bank, focusing on anti-fraud measures and ensuring exchanges keep local operations transparent.

Table: Cryptocurrency regulators around the world

As the crypto world keeps evolving, it’s obvious we’ll see even more regulations and new agencies pop up. For now, each country is trying to protect its investors and broader economy as best it can.

While the SEC crypto strategy under Trump regime is focusing more on innovation, some countries like China and Japan still set the rules noticeably stricter, but whether to understand that’s ultimately good or bad for the market is something we’ll probably need a few more years to find out.

The Most Trending Findings

Browse our collection of the most thorough Crypto Exchange related articles, guides & tutorials. Always be in the know & make informed decisions!

Exchanges

What is Margin Trading in Crypto? A Beginner-Friendly Guide

Cryptocurrencies

How to Buy Melania Trump Crypto Coin: Step-by-Step Guide

Cryptocurrencies

Best Cosmos Airdrop List for Beginners and Pros

Conclusion

When it comes to cryptocurrency regulation SEC, whether you’re launching a crypto ETF, selling tokens, or running a major exchange like Binance or Bybit, one thing is clear: you have to play by the agency’s rules — or at least work closely with them.

The last few years have been a wild ride of shifting priorities, high-stakes lawsuits, and dramatic policy pivots. From the XRP crypto SEC appeal to the collapse of stablecoins like UST, these decisions have reshaped the entire market and kept even the most secure platforms constantly on alert.

However, the SEC crypto strategy under Trump governance, which is led by Chair Paul Atkins and Commissioner Hester Peirce’s Crypto Task Force, moved toward clearer, more practical frameworks. Still, what happens under a future administration is anyone’s guess, and it’s a reminder that in crypto, the rules of the game can change just as fast as the markets do.

The content published on this website is not aimed to give any kind of financial, investment, trading, or any other form of advice. BitDegree.org does not endorse or suggest you to buy, sell or hold any kind of cryptocurrency. Before making financial investment decisions, do consult your financial advisor.

Scientific References

1. U.S. Securities and Exchange Commission: ‘Staff Accounting Bulletin No. 121’;

2. Bank for International Settlements: ‘The Crypto Ecosystem: Key Elements and Risks’.