SEC vs CFTC: how US crypto regulation is split and what the CLARITY Act would change

The single question that has shaped crypto regulation in the United States for a decade is deceptively simple: is this token a security or a commodity? The answer determines which agency regulates it, which rules an exchange listing it must follow, what disclosures an issuer owes, and whether a company can operate in the US at all. Two agencies claim the territory, their tests were written for a different century, and Congress spent years failing to settle it. This guide explains the split, why it matters and where the effort to fix it stands.

Two agencies, two mandates

The Securities and Exchange Commission regulates the offer and sale of securities: stocks, bonds, investment contracts. Anyone issuing a security must register the offering or qualify for an exemption and provide ongoing disclosure; any venue trading securities must register as an exchange or broker-dealer. The Commodity Futures Trading Commission regulates derivatives markets on commodities: futures, options and swaps. Critically, the CFTC’s authority over the spot market for a commodity, meaning direct buying and selling rather than derivatives, is limited to policing fraud and manipulation after the fact. It cannot license or supervise a spot bitcoin exchange the way it supervises a futures exchange.

That gap is the problem. Bitcoin and ether are treated as commodities, so a spot exchange trading them is supervised by nobody at the federal level beyond anti-money-laundering rules from FinCEN and a patchwork of state money transmitter licenses. If a token is a security, the exchange trading it needs SEC registration, which no crypto exchange had, and the SEC’s position under its previous leadership was that most tokens other than bitcoin were securities. The result was that the largest exchanges in the country operated for years under the threat of being declared illegal.

The Howey test

Whether something is an investment contract, and therefore a security, is decided under a 1946 Supreme Court case about Florida orange groves. SEC v. Howey asks whether there is an investment of money, in a common enterprise, with a reasonable expectation of profits, derived from the entrepreneurial or managerial efforts of others. Applied to tokens, the argument turns on the last two prongs. A token sold by a founding team to fund development, where buyers expect the team’s work to raise the price, looks like an investment contract. A token on a network that runs itself, with no central party whose efforts drive value, looks less like one. The SEC’s 2019 framework and its litigation against Ripple, Coinbase, Binance and others tried to apply that logic case by case; the Ripple ruling in 2023 that XRP sold on exchanges was not a security but institutional sales were, showed how unstable the results could be.

What changed in 2025

The change of administration in January 2025 reversed the enforcement posture almost immediately. The SEC created a Crypto Task Force, dismissed or paused most of its pending cases against exchanges and issuers, rescinded the accounting bulletin that kept banks out of custody, and began issuing staff statements narrowing what it considered a security: memecoins, most stablecoins and protocol staking were each addressed in guidance that placed them outside securities law. The agency’s stated aim shifted to writing rules for how crypto securities could be issued and traded rather than to proving that they were securities. The CFTC, meanwhile, moved to allow spot and perpetual crypto trading on registered exchanges. Two executive orders, one establishing a working group on digital asset markets and one creating a Strategic Bitcoin Reserve, set the policy direction from the White House.

Drawing the line in statute

Guidance can be reversed by the next administration, which is why the industry’s priority became legislation. The Digital Asset Market Clarity Act, known as the CLARITY Act, passed the House of Representatives in July 2025 with bipartisan support. Its core mechanism is a definition: a “digital commodity” is a token whose value derives from the use and functioning of a blockchain, and a network that meets a decentralization test, with no single party controlling it, is treated as a commodity system whose tokens fall to the CFTC. Tokens sold to raise capital would be securities at issuance but could transition to commodity status once the network matures. The bill would give the CFTC full authority over spot digital commodity markets, require exchanges to register with one agency or the other, and impose customer asset segregation and disclosure rules. The Senate produced its own drafts through late 2025 and negotiations over the decentralization test, DeFi treatment and the SEC’s residual authority ran into 2026. Check the regulation section of this site for the current status, because the details of what finally passes will define the category for years.

Why it matters to an institution

The classification decides everything downstream. A commodity can be held through a spot ETF, traded on a CFTC-registered venue and custodied by a bank under commodity rules. A security requires a registered issuer, a registered exchange, a transfer agent and broker-dealer custody, none of which most tokens have. Until the line is in statute, an institution holding anything beyond bitcoin and ether is holding an asset whose legal status rests on agency guidance, and its compliance team knows it. The value of market structure legislation is less any individual provision than the fact that it would let a general counsel answer the question once.