Crypto Regulatory Classifier
Is Your Token a Security or Commodity?
Based on SEC's Howey Test and CFTC commodity rules
When you buy Bitcoin or trade Ethereum, who’s actually watching over you? It’s not one agency. It’s two-and they’re fighting over who gets to call the shots. The SEC says most crypto tokens are securities. The CFTC says they’re commodities. And right now, no one knows which rule applies-until they get sued.
How It All Started
The split goes back to 2015. That’s when the CFTC ruled Bitcoin was a commodity under the Commodity Exchange Act. They didn’t need new laws. They just used existing ones. The SEC didn’t agree. They saw something else: investments. People were buying tokens not to use them, but because they expected prices to go up-thanks to the team behind them. That’s the core of the Howey Test, a 1946 Supreme Court ruling that defines what counts as a security. By 2017, the SEC started cracking down on ICOs-those early crypto fundraising events. They said most of them were unregistered securities sales. The CFTC, meanwhile, was busy approving Bitcoin futures on exchanges like CME. They weren’t stopping innovation. They were building markets around it.The Legal Gray Zone
Here’s where it gets messy. Bitcoin? The courts have said it’s a commodity. Ether? Also a commodity, according to federal judges. But what about Solana? Cardano? A new token launched last week? There’s no checklist. No official list. Just two agencies applying different tests. The SEC uses the Howey Test: Did someone invest money? In a common project? Expecting profits from others’ work? If yes-it’s a security. The CFTC looks at whether the asset is traded like a commodity-like oil or wheat-with no ownership rights or profit-sharing attached. That leaves hundreds of tokens stuck in the middle. Is a token a security if it’s decentralized? What if it’s used for payments? What if it started as a security but became decentralized later? The law doesn’t say. And that’s exactly why companies are getting sued.The Coinbase Case That Changed Everything
In June 2023, the SEC sued Coinbase, saying it was operating as an unregistered exchange, broker, and clearinghouse because it traded assets the SEC claimed were securities. Coinbase argued the SEC was overreaching-that most of these tokens were commodities under CFTC jurisdiction. In March 2024, a judge said the SEC had a valid case. That sent shockwaves through the industry. But then, in February 2025, something unexpected happened. The SEC dropped the case entirely. No explanation. No admission. Just a joint dismissal. That wasn’t a win for Coinbase. It was a sign the SEC’s strategy was crumbling. The agency had spent two years building a case based on vague definitions. When push came to shove, they backed down. Experts think this signals a shift under new leadership-or at least a realization that their legal theory is too weak to win in court.
Who’s Winning? The Market Says Neither
The SEC has filed 32 crypto enforcement actions since 2017. The CFTC? Just 15. But the SEC’s cases mostly target platforms-not the tokens themselves. Their big wins? Coinbase, Binance, Kraken. All exchanges. That’s because it’s easier to sue a company than to prove a token is a security. Meanwhile, the CFTC has quietly expanded its reach. In April 2025, they approved spot Ethereum ETFs. That’s huge. Spot ETFs mean real crypto, not futures. It’s a direct challenge to the SEC’s authority over asset listing. And here’s the kicker: the SEC delayed decisions on Bitcoin spot ETFs until August 2025. While the CFTC moved forward, the SEC stalled. That’s not coincidence. It’s a power play.What’s Happening in Congress?
Lawmakers are tired of the chaos. In April 2024, the House passed the CLARITY Act. It’s simple: if a digital asset is decentralized, mature, and doesn’t give ownership rights-it’s a commodity. That puts Bitcoin, Ether, and others under the CFTC. Everything else? SEC territory. The Senate hasn’t moved yet. But they’re working on their own version. The key difference? The Senate version wants a formal review process before any new token launches. That could slow innovation even more. The real question isn’t which agency wins. It’s whether Congress can agree on a rule before the next big crypto boom hits. Right now, U.S. crypto firms are losing ground. In 2020, they controlled 32% of the global market. By 2024, that dropped to 14%. Why? Because companies move to Europe, Singapore, or Dubai-places with clear rules.
How This Affects You
If you’re a trader: You’re not protected. No agency guarantees safety. If a token gets labeled a security after you buy it, the exchange might freeze it. You could lose access overnight. If you’re a developer: Launching a new token? You need lawyers. A legal review costs $185,000 on average and takes 3-6 months. Most startups can’t afford it. That’s why innovation is fleeing the U.S. If you’re a crypto company: You’re paying twice. Kraken and Gemini spend 35% more on compliance because they follow both SEC and CFTC rules. That’s $2.7 million a year on average per firm-just to stay out of court.What’s Next?
The most likely outcome? A compromise by late 2025. The CFTC gets Bitcoin, Ether, and other well-established tokens. The SEC keeps control over new tokens sold to investors with promises of profit. But here’s the problem: The SEC doesn’t want to give up power. The CFTC doesn’t want to be sidelined. And Congress is slow. Meanwhile, state regulators are stepping in. In April 2025, Oregon sued Coinbase under state securities law-because federal agencies couldn’t agree. The bottom line? Until Congress acts, crypto in the U.S. is stuck in legal limbo. The agencies aren’t protecting you. They’re fighting each other-and you’re paying the price in fees, delays, and lost opportunities.Is Bitcoin a security or a commodity?
Bitcoin is legally classified as a commodity by the CFTC, and federal courts have upheld that view. The SEC does not consider Bitcoin a security because it lacks a central team whose efforts drive its value. It’s decentralized, widely traded, and functions more like digital gold than an investment contract.
Why does the SEC care about crypto tokens?
The SEC believes many crypto tokens are sold like investments-people buy them expecting profits based on the project’s team, roadmap, or marketing. That matches the Howey Test definition of a security. The SEC’s job is to protect investors from fraud and unregistered offerings, so they target tokens that fit this pattern, especially those sold in ICOs.
Can a token change from a security to a commodity?
Theoretically, yes. If a token starts as a security-say, during an ICO with promises of future profits-but later becomes fully decentralized and no longer depends on a central team for its value, it could be reclassified as a commodity. But no court has officially ruled this yet. The SEC hasn’t acknowledged this transition, so it’s a legal gray area.
What’s the difference between a futures contract and a spot trade?
A spot trade means buying or selling the actual asset right now-like buying 1 Bitcoin today. A futures contract is an agreement to buy or sell Bitcoin at a set price on a future date. The CFTC regulates futures and derivatives. The SEC regulates spot trades only if the underlying asset is a security. That’s why the CFTC approved Bitcoin futures in 2017 but the SEC resisted spot Bitcoin ETFs until 2024.
Why are U.S. crypto firms losing market share?
Because other countries have clear rules. The EU’s MiCA regulation, which took effect in June 2024, gives crypto firms one set of rules to follow across all 27 member states. In the U.S., companies face conflicting rules, constant legal threats, and delays. As a result, many firms move operations overseas, and investors look for safer, clearer markets.
What should I do if I’m holding crypto right now?
Don’t panic. But be aware: the rules can change overnight. Stick to major, well-established assets like Bitcoin and Ethereum-they’re less likely to be reclassified. Avoid tokens with unclear use cases or promises of returns. And if you’re trading on U.S. exchanges, assume your assets could be frozen if regulators decide they’re unregistered securities. Diversify and stay informed.
Joy Whitenburg
November 11, 2025 AT 09:36man i just hold btc and eth and ignore all this drama. if it goes up i smile, if it goes down i shrug. why are we letting lawyers decide what money is?
Kristin LeGard
November 12, 2025 AT 09:10the SEC is just scared because they can’t control crypto like they control stocks. they want to tax it, regulate it, shut it down. meanwhile the CFTC is like ‘cool, let’s build a futures market.’ guess which one actually understands markets?
Arthur Coddington
November 13, 2025 AT 09:57the whole thing is a farce. two federal agencies with no idea what they’re doing, suing companies while the market moves on. this isn’t regulation, it’s performance art. and we’re the audience paying for tickets.
Ruby Gilmartin
November 13, 2025 AT 21:47the fact that the SEC dropped the Coinbase case without explanation proves they had no legal ground. they were bluffing. and now they’re stuck. the CFTC just approved spot eth ETFs. the SEC’s entire narrative is collapsing under its own weight.