SEC vs CFTC: How the Crypto Regulatory Battle Is Shaping the Future of Digital Assets

Ben Bevan 21 November 2025 34 Comments

Crypto Regulatory Classification Checker

Determine whether your favorite cryptocurrency is likely classified as a security (regulated by the SEC) or commodity (regulated by the CFTC) based on key regulatory criteria from the Howey Test.

Note: This tool is for educational purposes only and does not constitute legal advice. Actual classification depends on specific circumstances and regulatory interpretations.

1. Does the asset have a central development team or entity?

Yes, there's a central team No, fully decentralized

2. Was the asset created through an initial sale to investors?

Yes, sold to investors with profit expectations No, not sold to investors

3. Does the asset rely on the efforts of a central entity for value?

Yes, value depends on central team No, value independent of central entity

Classification Result

Not classified yet

Likelihood:

When you buy Bitcoin or trade Ethereum, who’s actually in charge? It’s not as simple as you might think. Two U.S. government agencies - the SEC and the CFTC - are locked in a quiet but high-stakes battle over who gets to regulate cryptocurrencies. One says crypto tokens are securities. The other says they’re commodities. And right now, no one knows for sure which rule applies to your favorite coin.

How It All Started

The fight began in 2015, when the CFTC stepped in after a Bitcoin trading platform called Coinflip, Inc. got caught running an unregulated options market. The CFTC didn’t just shut them down - it made a bold declaration: Bitcoin is a commodity. That meant it fell under the CFTC’s authority, which was built to oversee things like oil, wheat, and gold futures. The CFTC’s logic was simple: if you can buy, sell, or trade it like a good in a market, it’s a commodity.

But the SEC had a different idea. Since 2017, they’ve been using a 1946 Supreme Court case called SEC v. W.J. Howey Co. to decide whether a digital asset is a security. The Howey Test asks three things: Did someone invest money? Was it in a common enterprise? And were they expecting profits mainly from someone else’s work? If the answer is yes, then it’s a security - and the SEC has full power to regulate it.

That’s where the conflict exploded. Bitcoin? Most courts now agree it’s a commodity. Ethereum? Also mostly treated as a commodity. But what about Solana, Cardano, or a new token launched last week? The SEC says: “Probably a security.” The CFTC says: “Probably not - unless it’s being traded as a future or option.”

What Each Agency Can Actually Do

The difference isn’t just theory - it’s legal power. The CFTC can regulate derivatives: futures, options, swaps. That’s why they approved Bitcoin futures in 2017 and Ether futures in 2023. They can also go after fraud and market manipulation in spot markets, but they don’t have broad oversight over exchanges that just let you buy and sell crypto directly.

The SEC, on the other hand, controls everything tied to securities. That means they regulate stock exchanges, broker-dealers, and investment companies. If a crypto exchange lists a token the SEC says is a security, and it doesn’t register as a national exchange, the SEC can sue. That’s exactly what happened in June 2023, when the SEC sued Coinbase for operating an unregistered securities exchange, broker, and clearing agency.

The result? Crypto platforms are stuck in the middle. Kraken and Gemini now follow both sets of rules - just to be safe. That means hiring two legal teams, running two compliance systems, and paying double the fees. According to a 2024 Deloitte survey, U.S. crypto firms spend an average of $2.7 million a year just to navigate this mess. Nearly half of that cost comes from trying to satisfy both agencies at once.

Who’s Winning? The Courts Weigh In

The courts have been the real battleground. In 2018, a federal judge in New York ruled in CFTC v. McDonnell that virtual currencies are “goods” - meaning commodities. In 2023, Judge Katherine Polk Failla sided with the SEC in SEC v. Coinbase, saying the agency had a plausible case that some tokens traded on Coinbase were securities.

But then came the twist. On February 27, 2025, the SEC dropped the case entirely. No explanation. No admission of error. Just a joint filing to dismiss. Market watchers saw it as a major shift. Was the SEC backing down? Or just changing tactics?

The answer might be both. Under new leadership, the SEC appears to be pulling back from broad enforcement against established cryptocurrencies like Bitcoin and Ether. But they’re still aggressively targeting new tokens, DeFi protocols, and platforms that don’t register. Meanwhile, the CFTC has quietly expanded its reach - approving spot Ethereum ETFs in April 2025, a move that stretched their authority beyond futures into direct asset trading.

A futuristic crypto exchange interface with dual SEC and CFTC control panels.

The Legislative Push for Clarity

Congress has been watching. In April 2024, the House passed the CLARITY Act - a bill that would finally draw a line. Under this law:

Any digital asset that’s decentralized, runs on a mature blockchain, and doesn’t give ownership rights to holders would be a digital commodity - regulated by the CFTC.
Anything else - especially tokens sold to raise money with promises of profit - would be a security - regulated by the SEC.

The bill has bipartisan support. But it’s stuck in the Senate. The Senate Banking Committee has its own draft, and the Senate Agriculture Committee (which oversees the CFTC) is working on its version. No one agrees on the details. Will Bitcoin and Ether be protected? What about stablecoins? What counts as “sufficiently decentralized”? These questions are still being fought over.

What This Means for You

If you’re just holding Bitcoin or Ethereum, you probably won’t feel the impact. But if you’re trading newer tokens, staking, or using DeFi apps, you’re playing in a legal gray zone. Many platforms have already pulled U.S. users from certain tokens - not because they’re illegal, but because they can’t tell if the SEC will come after them next.

The cost of this uncertainty is real. A CoinDesk survey of 250 crypto executives in January 2024 found that 73% said regulatory confusion was their biggest business challenge. Over 80% of U.S. crypto firms said they delayed product launches because they didn’t know who to answer to. That’s billions in lost investment.

And while the U.S. dithers, other countries are moving fast. The European Union launched MiCA in June 2024 - a single, clear rulebook for crypto across all 27 member states. The U.S. crypto market was worth $175 billion in annual transactions in 2024, but U.S. firms captured only 14% of global crypto activity - down from 32% in 2020. Why? Because investors and companies are going where the rules are clear.

A fragmented U.S. map of crypto tokens, some connected, others drifting away.

What’s Next?

The most likely outcome? A compromise by late 2025. Experts at the Bipartisan Policy Center give it a 68% chance of passing before the 2026 midterms. The deal will probably look like this:

Bitcoin and Ether - officially commodities, under CFTC.
New tokens sold in ICOs - securities, under SEC.
Stablecoins - maybe a new category, maybe under the CFTC with banking oversight.

But until then, the chaos continues. State regulators are stepping in. In April 2025, Oregon sued Coinbase under state securities law - the first of what could be many. The message? If Washington won’t act, states will.

Bottom Line

This isn’t just a bureaucratic fight. It’s about who controls the future of money. The SEC wants to protect investors by treating crypto like stocks. The CFTC wants to let innovation grow by treating it like gold. Both have valid points. But right now, the lack of clear rules is hurting businesses, scaring investors, and pushing innovation overseas.

The next 12 months will decide whether the U.S. leads the next financial revolution - or watches from the sidelines while other countries build the future.

Is Bitcoin a security or a commodity?

Bitcoin is widely treated as a commodity under CFTC jurisdiction. Courts have consistently ruled that Bitcoin meets the definition of a commodity under the Commodity Exchange Act. The SEC has never claimed Bitcoin is a security, and most legal experts agree it fails the Howey Test because it has no central company or team generating profits for investors.

Why does the SEC care about crypto at all?

The SEC focuses on investments where people put money into a project expecting profits from others’ efforts - the classic definition of a security. Many crypto tokens, especially those sold in ICOs, were marketed with promises of returns, team development, or ecosystem growth. That’s why the SEC sees them as unregistered securities. Their goal is to prevent fraud and protect retail investors from misleading sales.

Can a crypto token be both a security and a commodity?

Technically, yes - but not at the same time under current law. A token might start as a security (during its sale) and later become a commodity if it becomes decentralized and no longer relies on a central team for value. Ethereum is the best example: it was likely a security during its 2014 ICO, but now, after years of decentralization, it’s treated as a commodity by the CFTC and most regulators.

Why do exchanges like Coinbase get sued by the SEC?

The SEC claims Coinbase listed tokens that qualify as securities without registering as a national securities exchange or acting as a broker. Even if the exchange thinks a token is a commodity, the SEC says: “If it’s a security, you need to register.” Coinbase argued the SEC didn’t give clear rules - but the court said that doesn’t excuse compliance. The case was dropped in 2025, but the legal standard remains.

What’s the biggest risk for crypto users right now?

The biggest risk isn’t hacking or price drops - it’s sudden regulatory action. A token you’re holding today could be declared a security tomorrow, and your exchange might delist it overnight. Or your staking rewards could be deemed unregistered securities trading. Until Congress passes clear rules, you’re operating in a legal gray zone with no warning.

Will the U.S. lose crypto innovation because of this?

Already, yes. U.S. crypto firms captured only 14% of global crypto volume in 2024, down from 32% in 2020. Companies are moving teams to Singapore, Switzerland, and Dubai because those places have clear rules. The longer Congress waits, the more innovation leaves the U.S. - and the harder it will be to catch up.