By: Gena Dirani
On August 21, 2026, the SEC proposed Regulation Crypto Assets, a proposed framework for certain investment contracts involving crypto assets. The proposal would establish two exemptions from Securities Act registration, along with a conditional safe harbor addressing when a crypto asset may cease to be subject to an investment contract. The SEC’s stated objective is to create a framework tailored to crypto asset markets while facilitating capital formation and providing investors with information needed to make informed investment decisions.¹
A Tailored Offering Framework
The proposal would create two exemptions from Section 5 of the Securities Act for certain “covered investment contracts.”
First the Startup Exemption, would permit offerings of up to $5 million over a four-year period. The SEC explains that the four-year period is intended to give issuers time to fulfill the essential managerial efforts they have represented or promised to undertake while limiting the period during which an issuer can rely on the exemption. The exemption would have disclosure requirements tailored to its lower offering limit and limited duration.²
The second, the Fundraising Exemption, would permit offerings of up to $75 million during a 12-month period through two tiers. Tier 1 would permit offerings of up to $20 million, while Tier 2 would permit offerings of up to $75 million. A key difference between the tiers is that Tier 2 would require financial statement assurance, while Tier 1 would not. Both tiers would be subject to ongoing reporting requirements.³
The proposed exemptions are intended specifically for “covered investment contracts.” The SEC’s proposal distinguishes between a crypto asset itself and an investment contract through which that asset may be offered or sold. A crypto asset that is not itself a security can nevertheless be offered and sold pursuant to an investment contract, bringing the transaction within the federal securities laws.⁴
Issuers relying on the proposed exemptions would remain subject to the federal securities laws’ antifraud and antimanipulation provisions.⁵
Investment Contract Safe Harbor
The proposal also includes an Investment Contract Safe Harbor addressing when a crypto asset that was previously subject to an investment contract may cease to be subject to that investment contract.
Under proposed Rule 400, a covered investment contract would be deemed to have ceased to exist if the issuer has completed or permanently ceased all essential managerial efforts that it represented or promised to undertake and is not making, or intending to make, new representations or promises to engage in essential managerial efforts with respect to the crypto asset. The issuer would also be required to file a transition report on Form TR.⁶
The safe harbor would apply to the definitions of “security” under the Securities Act and Exchange Act. Importantly, the SEC is separately asking whether the safe harbor should also apply to the definitions of “investment contract” under the Investment Company Act and Investment Advisers Act. Accordingly, the proposal does not currently establish a comparable safe harbor under those statutes.⁷
The safe harbor would also not be the exclusive means by which a crypto asset could cease to be subject to an investment contract. The SEC states that even if an issuer does not satisfy the safe harbor, a crypto asset may nonetheless fall outside the federal securities laws based on the Howey analysis.⁸
Why the Proposal Matters
For market participants evaluating crypto assets, the proposal provides a framework for considering how the regulatory status of a crypto asset can evolve over time.
The SEC’s March 2026 interpretation explained that a non-security crypto asset may become subject to an investment contract when it is offered with representations or promises concerning essential managerial efforts from which purchasers reasonably expect to profit. The SEC also explained that a crypto asset may subsequently separate from those representations or promises when purchasers can no longer reasonably expect those managerial efforts to remain connected to the asset.⁹
Regulation Crypto Assets would provide a more defined framework for that transition. As a practical matter, this could make the manner in which a crypto asset was initially offered, the issuer’s representations and promises, and the status of the issuer’s managerial efforts relevant considerations when evaluating the asset and monitoring its regulatory status over time.
The proposal also addresses state securities law preemption. Proposed Rule 500 would establish a definition of “qualified purchaser” for purposes of Section 18(b)(3) of the Securities Act that would generally preempt state registration and qualification requirements for covered investment contracts offered under Regulation Crypto Assets, as well as certain secondary-market transactions. The proposed definition would not affect the separate “qualified purchaser” definition under the Investment Company Act.¹⁰
What Happens Next?
Regulation Crypto Assets remains a proposed rule. The SEC is accepting comments through October 20, 2026.¹¹
Regulation Crypto Assets should be viewed as one component of the SEC’s broader effort to establish a regulatory framework for crypto markets, rather than as a comprehensive set of rules governing crypto assets. If adopted, the framework could provide greater clarity around the offering of certain crypto assets, the circumstances under which an investment contract may cease to exist, and the treatment of certain secondary-market transactions. For now, market participants should continue to monitor the rulemaking, particularly the final scope of the proposed exemptions and Investment Contract Safe Harbor.
Sources
- Regulation Crypto Assets, Securities Act Release No. 33-11434; Exchange Act Release No. 34-106150, 91 Fed. Reg. 54,510, 54,510–12 (Aug. 21, 2026).
- Id. at 54,531–32.
- Id. at 54,542–43.
- Id. at 54,514–15.
- Id. at 54,510.
- Id. at 54,554–55.
- Id. at 54,555; see also proposed Rule 400, 17 C.F.R. § 230.400.
- Id. at 54,555.
- Id. at 54,514–15 (discussing the SEC’s March 2026 interpretation).
- Id. at 54,555–56.
- Id. at 54,510.