Washington’s political and regulatory standoff is intensifying as lawmakers prepare to unveil a landmark crypto market structure bill. With just weeks to go before the August recess, divisions inside the digital asset industry are erupting into open conflict over how crypto should be regulated.
The upcoming legislation, expected from the House Financial Services and Agriculture Committees, aims to provide more explicit guidance on which digital assets fall under securities or commodities law. However, disagreements across the crypto ecosystem and within regulatory agencies create deep uncertainty.
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Industry Divides Over Legal Tests and Regulatory Definitions
Central to the debate is the continued use of the Howey Test, a decades-old legal benchmark used by the SEC to classify securities. While SEC Commissioner Caroline Crenshaw and former Internet Enforcement Chief John Reed Stark have defended the test, critics argue it is ill-suited for blockchain-based technologies.
New SEC Chairman Paul Atkins and several Republican lawmakers are pushing back, demanding regulatory reforms they believe would better support innovation. Their efforts reflect growing concern that the current framework could stifle industry development.
Legal experts have introduced several competing approaches. One argument calls for limiting securities treatment to digital assets explicitly tied to written investment contracts. This view surfaced during the Ripple case but was not fully adopted by the court.
Decentralization Push Gains Support From Key Industry Players
Another approach gaining attention is the “ancillary asset” model. Advocated by attorneys like Lewis Cohen, this proposal treats initial token sales as securities offerings while potentially exempting secondary trading. It builds on elements from the Responsible Financial Innovation Act.
Multiple major crypto organizations, including Coinbase, a16z Crypto, and Optimism, support using decentralization as their proposed regulatory framework. According to their opinion, security laws must not apply to tokens that exist on sufficiently decentralized networks. This perspective draws support from a 2018 speech by former SEC Director William Hinman, who stated that Ethereum was no longer considered a security.
A new formal decentralized testing method is under development to differentiate between public blockchain projects and centralized token companies. Commissioner Hester Peirce has publicly endorsed the proposed decentralization test, which supports the need for regulatory certainty.
Preparations are underway as industry groups draft responses ahead of a joint hearing scheduled for May 6. The bill, which may draw from last year’s FIT21 Act, is expected to shape future rulemaking by the SEC and CFTC.
Conclusion
With lawmakers pushing forward and key players resisting, the stage is set for a heated regulatory battle. The outcome could redefine how digital assets are treated across U.S. financial markets.
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