Crypto investors have complained for years that their industry was regulated via law-by-ambush: Regulators brought lawsuits first and then defined norms after.
Happily, that era appears to have ended on March 17, when the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) issued a formal classification structure covering most crypto assets, including Ethereum (ETH +2.86%), XRP (XRP +1.68%), Solana (SOL +2.58%), Cardano, Chainlink, and even Dogecoin. Most of the crypto majors you're familiar with are now considered "digital commodities," but the implications of the new classification format reach further than a single label, and they might open the door to a new golden age of crypto. Here's what you need to know.
Image source: Getty Images.
Welcome to the new crypto taxonomy
The 68-page document published by the SEC and CFTC addresses a wide array of core cryptocurrency topics, including staking, mining, airdrops, and the provenance of wrapped tokens, all of which are activities that have drawn regulatory scrutiny for years. Although it isn't the same as a new law governing crypto, it's a set of guidelines where regulators explain how they will approach (and police) the sector from here on.
The joint guidance establishes five categories for cryptocurrencies:
- Digital commodities
- Digital collectibles
- Digital tools
- Stablecoins
- Digital securities
The first category is where most investor attention belongs, as the SEC and CFTC explicitly named 16 of the leading cryptos as digital commodities, including every asset mentioned above -- yes, even Dogecoin. But regulators also accounted for the possibility that a coin might begin its life in one category and then transition to another; although Dogecoin was specifically singled out as being a digital commodity, certain other dog-themed meme coins were specified as being digital collectibles.
CRYPTO: ETH
Key Data Points
Equally significant is what the framework says about earning a yield from crypto investments. Staking, which is to say, the process of locking up tokens to help validate a proof-of-stake (PoS) blockchain like Ethereum, is now classified as an "administrative activity" rather than being a securities offering.
The red line is now whether a staking service is promising investors a return based on their own advantage or effort. Self-directed and protocol-level staking are now on firm legal ground, but pooled staking products where a centralized platform controls the yield could still potentially be subject to legal consequences.
The guidance also softens the regulatory stance on airdrops, which are somewhat akin to special dividends in the traditional finance world in the sense that airdrops disburse capital to asset holders if they meet the qualifying criteria, which tend to vary significantly. Now, when the intended recipients of an airdrop doesn't provide money, goods, or services in exchange for tokens, the issuer of the airdrop probably won't violate securities regulations.
CRYPTO: SOL
Key Data Points
What this could mean for crypto prices
These new classifications are probably going to lead to a lot of new opportunities for growth among the crypto majors.
For instance, for XRP specifically, the guidance closes a wound that has been bleeding since 2020; its issuer, Ripple, spent years and hundreds of millions of dollars fighting the SEC allegations that XRP was an unregistered security. With its digital commodity status now in writing, the chain has regulatory clarity, which is bound to make its target users, financial institutions, more comfortable with moving their capital to the chain and adopting it as a piece of financial technology.
CRYPTO: XRP
Key Data Points
Ethereum and Solana also benefit directly. Staking, which both chains offer extensively in a few different ways, is no longer on shaky legal ground.
Furthermore, their decentralized finance (DeFi) ecosystems can now attract institutional capital with much less legal ambiguity. And real-world asset (RWA) tokenization -- the process of storing ownership records for bonds, treasuries, and financial instruments on a blockchain -- is now more legally secure, as tokenized stocks and bonds will now be considered digital securities, reducing the regulatory ambiguities of their use.
There are also a couple of new caveats in play. The framework explicitly notes that a non-security crypto may be considered as a security if an issuer makes forward-looking promises about value and investors rely on those for profit.
Still, this is the clearest, most positive signal that U.S. regulators have ever sent to crypto investors. For investors willing to think in years rather than months, the long-term future of cryptocurrency just got materially brighter.
