The SEC’s Long-Awaited Crypto Proposal

A tailored securities offering regime for crypto assets 

After years of applying decades-old securities rules to digital assets, the Securities and Exchange Commission (SEC) has proposed a purpose-built framework for raising capital with crypto assets and, under specified conditions, allowing those assets to cease being subject to an investment contract under the federal securities laws. Although the SEC continues to coordinate with the Commodity Futures Trading Commission and has acknowledged the importance of market structure legislation, Chairman Paul Atkins has made clear that the SEC is prepared to move forward under its existing authority even if Congress does not act. Accordingly, on August 18, 2026, the Commission proposed Regulation Crypto Assets (Reg CA) for a specifically defined class of investment contracts involving crypto assets, referred to as “covered investment contracts.”[1] Building on the SEC’s March 17, 2026, interpretive release (the 2026 Interpretation),[2] the proposal seeks to build crypto capital formation while preserving the investor protections at the core of the federal securities laws.[3]

Key Takeaways

• A safe harbor from “investment contract.” A conditional safe harbor would allow a crypto asset to be deemed no longer subject to an investment contract once the issuer completes or permanently ceases its essential managerial efforts and files a transition report, codifying part of the 2026 Interpretation.[4]
• A tailored exemptive regime. There are two new exemptions from Securities Act registration available to crypto asset issuers, a “startup exemption” (for crypto asset offerings up to $5 million over four years) and a “fundraising exemption” (for crypto asset offerings up to $75 million per 12-month period, modeled on Regulation A). These exemptions would replace the ill-fitting registration and exemption choices crypto asset issuers face today.[5]
• Federal preemption of state law. A new definition of “qualified purchaser” would preempt state securities registration and qualification requirements for both primary offerings and many secondary-market transactions. Reg CA would reduce the application of state Blue Sky laws to purchasers’ acquisitions and certain resales of covered investment contracts.[6] That said, the effectiveness of these preemption provisions remains open to debate.

The Proposed Rule

Reg CA would be codified at 17 CFR part 228 and organized into five subparts, addressing general rules (Subpart A), the startup exemption (Subpart B), the fundraising exemption (Subpart C), an investment contract safe harbor (Subpart D), and preemption of state law (Subpart E).[7] 

The proposal starts by defining a “covered investment contract” as an investment contract where (1) a crypto asset is subject to the contract, (2) the crypto asset is not itself a security, and (3) no asset other than that crypto asset is subject to the contract.[8] This definition targets the initial coin offering (ICO)-style fact pattern that has posed persistent difficulties under the Supreme Court’s test in SEC v. W.J. Howey Co. (Howey), involving digital assets sold to finance a project based on a developer’s promised managerial efforts. Reg CA would give such offerings tailored capital-raising exemptions and a pathway for the underlying assets to cease being subject to an investment contract.

Startup exemption (Rule 200). The startup exemption is a one-time, non-exclusive exemption from Securities Act registration for offerings of up to $5 million over a four-year period.[9] The issuer files a notice of reliance on Form NOR, makes principles-based disclosures (Rule 103) publicly accessible free of charge, and files a transition report on Form TR within four years.[10] Unlike Regulation Crowdfunding, which permits the same $5 million but requires a registered intermediary, investor-level limits, detailed Form C and financial disclosures, and resale restrictions, Rule 200 accommodates the reality that a token project may “graduate” out of securities status. The tradeoff is real compliance obligations, including public filings, ongoing website disclosure, and continued exposure to the anti-fraud and anti-manipulation provisions of the federal securities laws.[11]

Fundraising exemption (Rules 300–307). The fundraising exemption is a non-exclusive, two-tier exemption modeled in part on Regulation A. Tier 1 permits up to $20 million and Tier 2 up to $75 million of covered investment contracts in a 12-month period.[12] Issuers file an offering statement on new Form 1-CRYPTO, provide a discussion of financial condition and financial statements (audited for Tier 2), and assume ongoing reporting obligations.[13] It would permit sales to retail investors, including non-accredited investors, though non-accredited investors remain subject to investment limits modeled on Regulation A. Because issuers can sell directly to investors without a traditional intermediary, the exemption may broaden the pool of projects able to raise capital. Covered investment contracts do not qualify as “eligible securities” under Regulation A.[14]

Investment contract safe harbor (Rule 400). Proposed Rule 400 would set forth a non-exclusive safe harbor from the term “investment contract” in the definitions of “security” in section 2(a)(1) of the Securities Act and section 3(a)(10) of the Exchange Act.[15] If an issuer (1) has completed or otherwise permanently ceased all essential managerial efforts it represented or promised, and does not intend to make new such promises, and (2) files a Form TR certifying and analyzing that determination, the covered investment contract is “deemed by the Commission to have ceased to exist.”[16] This gives issuers a mechanism to exit securities status with regulatory certainty and codifies the relevant portion of the 2026 Interpretation.[17] However, the safe harbor governs only the SEC’s administration of the securities laws. and does not preclude the SEC from challenging an inaccurate certification, nor does it bind private plaintiffs, who may still assert that a crypto asset is a security.[18]

Preemption of state law (Rule 500). By defining “qualified purchaser” for purposes of Securities Act section 18(b)(3), the proposal would render covered investment contracts as “covered securities,” preempting state registration and qualification requirements for primary offerings and for secondary-market transactions by persons other than issuers, underwriters, or dealers. The issuer must remain current with the applicable exemption’s disclosure, filing, and periodic reporting obligations.[19] For market participants, this reduces the Blue Sky burden that has historically complicated token distributions and secondary trading across state lines. Whether the Commission can achieve this result by rule alone is open to question, since preemption of state law ordinarily requires a statutory basis. Here, the SEC relies on its delegated authority to define “qualified purchaser” under Securities Act section 18(b)(3), an exercise of that authority that could invite challenge.

The Road Ahead: Reg CA and the Pending CLARITY Act

Even if finalized, Reg CA would resolve how tokens are offered and sold, but not the market structure and intermediary questions that legislation like CLARITY is designed to answer. The SEC frames the proposal as complementing “Congressional endeavors to codify a comprehensive market structure framework” and as furthering Congress’s work “to establish a lasting regulatory framework.”[20] The CLARITY Act, which remains pending in Congress, would allocate jurisdiction over digital-commodity spot markets and establish registration regimes for crypto exchanges, brokers, and dealers.[21] The proposal declines to address exemptions from the Exchange Act’s “exchange,” “broker,” and “dealer” definitions.[22]

What This Means for Market Participants

For issuers and investors in the crypto space, the proposal would create new capital-raising pathways, offer a potential route for a crypto asset to cease being subject to an investment contract, and could reduce state-law friction for qualifying offerings and certain resales. The proposal is now subject to a 60-day public comment period beginning on the date of its publication in the Federal Register.[23] Open issues will likely include investor limits, intermediary requirements, state-law preemption, secondary trading, disclosure obligations, and the conditions for terminating an investment contract.

Katten’s team is available to provide further guidance regarding Regulation Crypto Assets and its implications, including assistance with evaluating the proposed exemptions and safe harbor and preparing comments during the public comment period.