From "Guessing Game" to "Temporary Rules": A Decade of Absurdity in Cryptocurrency Regulation

Written by: Thejaswini MA

Compiled by: Block unicorn

On March 17, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) released the long-awaited rulebook for the cryptocurrency industry since 2013. I am pleased with this and am working towards achieving it.

Bitcoin has fallen 44% from its October high. Ethereum is priced around $2,000, less than half its price seven months ago. The total market capitalization of altcoins has evaporated by $470 billion since its peak. The Fear & Greed Index has reached 11. This isn't just a 11 for some bad week; it's 11 out of 100. This means people have stopped arguing about where the bottom is and have started selling off their remaining cryptocurrencies.

Then, on March 17th, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) released a document that finally revealed what the tokens you held actually were. This followed a decade-long legal battle, hundreds of enforcement actions, and billions of dollars in legal fees. Some companies even chose to relocate to Singapore rather than continue playing a guessing game with Gary Gensler. And the answer was finally revealed the week Ethereum's price fell below $1900.

The key point is that while the token economy itself has been severely impacted, everything beneath it is thriving. The circulating supply of stablecoins has surpassed $316 billion, and the size of on-chain real-world assets (RWA) has reached $26.5 billion and continues to grow. This is why Morgan Stanley is building a crypto trust bank. Meta abandoned its Metaverse project but is bringing stablecoins to WhatsApp. Stripe is processing $400 billion worth of stablecoin transactions. Nasdaq is building a tokenized stock trading platform. Cryptocurrencies are becoming a pillar of global finance, and in most cases, it doesn't rely on tokens.

Cryptocurrencies are no longer just a speculative asset class. The regulatory policy introduced on March 17 was originally designed for first-generation cryptocurrencies, but it was not officially implemented until after the arrival of the second-generation cryptocurrency era.

But that doesn't mean it's meaningless.

As former Securities and Exchange Commission (SEC) Chairman Paul Atkins once said, "We are no longer the 'Securities and Everything Commission'." Was that a bit too late?

For the first time, US regulators have provided a unified definition of cryptocurrencies. Five categories, with each type of token belonging to one of them. I will present these definitions below; please read with the assumption that you've never heard of these concepts before.

Digital commodities are the main focus. A digital commodity is a crypto-asset whose value derives from the programmed operation of a fully functional cryptographic system and dynamic supply and demand. Its value does not depend on the management of a central issuing authority. If the network is truly decentralized and functions properly, without any single company backing it, then the asset is a commodity. This is governed by the U.S. Commodity Futures Trading Commission (CFTC), not the U.S. Securities and Exchange Commission (SEC).

Sixteen mainstream tokens, including Bitcoin, Ethereum, Solana, XRP, Cardano, Avalanche, Polkadot, Chainlink, Dogecoin, and Shiba Inu Coin, have been officially recognized as digital commodities. Dogecoin and Shiba Inu Coin meet this definition because no initiator or institution is driving their value growth. They lack promises, roadmaps, and ongoing team work crucial to the token's value. This is why they are considered commodities rather than securities. The criterion is whether someone promises rewards based on their work.

Digital securities are tokenized stocks, bonds, and government bonds. Simply put, these assets were securities before being put on the blockchain, and they remain securities afterward. The U.S. Securities and Exchange Commission (SEC) regulates these assets. It's that simple.

Digital collectibles are NFTs (Non-Fundamental Trusts) tied to specific items or experiences. Digital tools are assets used to access software or services without expecting a return on investment. Stablecoins have their own category under the GENIUS Act.

Staking, mining, and airdrops have all been approved. The ruling explicitly states that receiving mining rewards, participating in on-chain staking, or receiving digital goods airdrops do not constitute securities transactions. This eliminates one of the biggest legal risks faced by proof-of-stake networks since the Gensler era. Packaging non-security tokens has also been permitted.

These 16 named tokens represent underlying infrastructure with years of decentralized development history. DeFi protocol tokens—such as JUP, POL, METEOR, and the vast majority of tokens launched in the last two years—are not named and clearly do not meet the criteria. A fully functional crypto system without centralized regulatory oversight has a high barrier to entry. Most actively developed protocols fail to meet this standard. This gray area, which should be addressed by this interpretation, remains unclear for the tokens actually held by most people.

Value must derive from the procedural operation of a fully functional system, not from someone's promise. This testing standard can transform a decade-long ambiguity into something compliance officers can actually tackle.

There's more to this than meets the eye.

This announcement does not constitute a formal rule-making procedure as stipulated in the Administrative Procedure Law, nor does it have the binding force of law or formally promulgated regulations.

You'd better read that sentence again. The 68-page document we've been waiting for is just an explanatory announcement, not a law or regulation, but merely an institutional position statement issued by the current chairmen of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which they can withdraw at any time.

This interpretation is a formal institutional act of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), and is legally binding. However, in the absence of relevant legislation, future administrations can amend it. The document itself reserves the right for each agency to refine or expand upon its views. A future SEC chairman with differing political views can overturn this interpretation without congressional approval. The next administration doesn't even need new laws, just new leadership.

Atkins was well aware of this. He expressed this view on the day it was released, calling on Congress to take action to provide more lasting clarity. He saw this interpretation as a transitional measure, awaiting Congress's action on comprehensive market structure legislation—the Market Structure Transparency Act. Currently, the Market Structure Transparency Act is under consideration in the Senate.

The Clarity Act

The House of Representatives passed the Clarity Act in July 2025 with 294 votes. Such high support for bipartisan cooperation indicates a genuine consensus between the two sides.

Then it went to the Senate and stalled.

The key obstacle to the bill's passage lies in the yield of stablecoins. Banks argue that allowing crypto platforms to pay interest on stablecoin balances would trigger an outflow of deposits. People would withdraw money from their savings accounts and deposit it in USDC for higher returns. Banking lobbying groups subsequently launched their campaign. The Senate Banking Committee cancelled its scheduled hearing in January 2026. The bill made no progress for the next two months.

On March 20, Senators Thom Tillis and Angela Althorbucks confirmed an agreement in principle regarding stablecoin rewards, which received White House support. The agreement stipulated that passive income from stablecoins would be prohibited; rewards linked to payments and platform usage would remain permitted. Neither side was satisfied, and compromises often arise in this way.

But the yield agreement is just one of five things that need to be done before the Clarity Act can take effect. The other four legislative steps are being completed during one of the most stressful periods of the year.

The Senate Banking Committee will review the matter; and the full Senate will vote (60 votes are required).
Coordination with the Agricultural Committee
Coordination with the House version
President signs

The Banking Committee's deliberations are scheduled for the second half of April, after the Easter recess. Senator Bernie Moreno warned that if the bill fails to reach a full Senate session before May, digital asset legislation may stagnate for years to come.

Furthermore, the Iran war also consumed significant time in the Senate. There was also the voter identification bill that Trump indicated he wanted to pass first. Provisions regarding decentralized finance (DeFi) remain unresolved, with Senate Democrats expressing concerns about the potential for illicit financial activities. Ethics provisions are also yet to be finalized, particularly regarding whether senior government officials should be prohibited from profiting from crypto assets—a politically sensitive issue given the current administration's holdings of cryptocurrency. Senate Republicans are currently discussing attaching deregulation provisions for community banks as a political bargaining chip to the bill, which will trigger a new round of negotiations.

The U.S. House Financial Services Committee recently held a hearing entitled "Tokenization and the Future of Securities: Modernizing Capital Markets." Witnesses included Kenneth Bentsen of the Securities Industry and Financial Markets Association (SIFMA), Summer Mersinger of the Blockchain Association, Christian Sabella of the DTCC, and John Zecca of Nasdaq. Both Nasdaq and the New York Stock Exchange are building tokenized stock trading platforms. The DTCC currently handles settlement. If the DTCC acknowledges the efficiency of blockchain, then the debate will effectively be over.

Therefore, infrastructure construction is based on a rulebook that may not even exist in two years. This is the dilemma the industry currently faces. Companies are making multi-billion dollar decisions to build custody systems, tokenization platforms, and staking infrastructure, all based on a persuasive but legally invalid interpretative document.

What is eternal, and what is not?

For readers holding the aforementioned 16 tokens (such as ETH, SOL, and XRP), these tokens are now officially recognized as digital goods under U.S. law, thanks to the statements made by the two regulatory officials. This classification will remain in effect as long as these two officials or their successors uphold this designation.

If the Clarity Act is passed, it will become law. No future president will have the power to overturn it without congressional approval. The listed assets will be permanently defined, and the classification criteria will be binding.

If it hasn't been approved by May, the current classification system will depend on the opinion of a single government department. Currently, 16 named assets are temporarily safe, but not all assets are named. Most decentralized finance (DeFi), most new tokens, and any permissionless asset without a clearly defined issuer remain in a gray area, an issue that wasn't explicitly addressed in previous explanations.

The most anticipated sentence is like a draft written in pencil.

Someone needs to pick up a pen and formally implement this. Everything hinges on the Senate's actions over the next six weeks. Will these rules last long enough for all of this to make sense?