The classification of cryptocurrency as either a security or a commodity remains one of the most contentious issues in financial regulation. This distinction is critical as it determines whether the Securities and Exchange Commission (“SEC”) or the Commodity Futures Trading Commission (“CFTC”) has jurisdiction over digital assets. Courts have increasingly addressed this question by applying the Howey Test to determine whether certain tokens qualify as securities, while the CFTC maintains that some cryptocurrencies, like Bitcoin, function as commodities. Recent high-profile cases, including SEC v. Ripple Labs, SEC v. Terraform Labs, and CFTC v. My Big Coin Pay, Inc., have provided further legal insight into how these assets are regulated.[i] As litigation continues, the legal landscape surrounding cryptocurrency classification remains uncertain, with significant implications for businesses, investors, and regulatory agencies.

Determining whether a cryptocurrency is classified as a security or a commodity is essential for regulatory oversight. Courts primarily rely on the Howey Test, established in SEC v. W.J. Howey Co., to assess whether an asset qualifies as a security.[ii] Under this test, an asset is deemed a security if it involves (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) derived from the efforts of others.[iii] The application of this test to cryptocurrency has led to conflicting interpretations, particularly concerning whether decentralized networks constitute a “common enterprise” and whether token holders rely on the managerial efforts of developers or promoters to generate profits.

In SEC v. Ripple Labs, the SEC alleged that XRP, a digital asset designed for fast and low-cost cross-border payments, was a security because Ripple, the company that created and distributed it, sold it to institutional investors with the expectation that its value would increase due to the company’s efforts. In this case, the court applied the Howey Test and distinguished between the different types of sales of XRP. It ruled that institutional sales met the Howey criteria as investors reasonably expected profits based on Ripple’s marketing and business operations.[iv] However, secondary market sales did not qualify as securities because retail investors did not necessarily rely on Ripple’s efforts.[v] This nuanced ruling suggested that the classification of crypto assets could depend on how and to whom they are sold rather than the nature of the token itself.

In another case, SEC v. Terraform Labs Pte. Ltd., the SEC sued Terraform Labs and Do Kwon, alleging that LUNA and UST were unregistered securities. The court, applying the Howey Test, analyzed Terraform’s promotional strategies and found that the company encouraged investors to expect profits based on its efforts to develop the Terra ecosystem.[vi] A key factor was the Anchor Protocol, where UST holders could earn up to 20% returns, making it clear that Terraform was not just offering a stablecoin but an investment product tied to its business.[vii] The court determined that whether purchased directly from Terraform or on the secondary market, all buyers had a reasonable expectation of profit based on Terraform’s ongoing efforts.[viii] This ruling reinforces the SEC’s authority over crypto projects that promote tokens as investments, signaling that other stablecoins with mechanisms tied to profit expectations—rather than solely maintaining a fixed value—could also face regulatory scrutiny.

In CFTC v. My Big Coin Pay, Inc., the court affirmed that virtual currencies can be classified as commodities under the Commodity Exchange Act (“CEA”), even if they are not directly subject to futures trading. The defendants argued that My Big Coin did not meet the statutory definition of a commodity because no futures contracts were traded on it.[ix] However, the court rejected this narrow interpretation, explaining that the CEA defines “commodity” broadly and categorically rather than by specific brands or types.[x] The court found that because future contracts existed for Bitcoin, which falls under the category of “virtual currencies,” other virtual currencies, including My Big Coin, could also be considered commodities under the CEA.[xi] This ruling reinforced the CFTC’s regulatory authority over digital assets, establishing the agency’s enforcement powers extend beyond traditional commodity markets and into emerging financial technologies.

A key development for the classification of cryptocurrency is the Financial Innovation and Technology for the 21st Century Act (“FIT21”), which establishes a structured regulatory framework. The bill, if approved by the Senate, grants the CFTC authority over digital assets on decentralized blockchains, classifying them as commodities.[xii]Meanwhile, the SEC retains oversight of assets with centralized control, treating them as securities.[xiii]

Additionally, on January 23, 2025, President Trump signed Executive Order 14178, Strengthening American Leadership in Digital Financial Technology, establishing a 180-day deadline for the development of a comprehensive federal framework overseen by his crypto czar, David Sacks.[xiv] This directive aims to bring clarity by distinguishing between tokens regulated as securities and those classified as commodities. To implement this, the order creates the Presidential Working Group on Digital Asset Markets to develop a federal regulatory framework for digital assets, including stablecoins, and assess a national digital assets stockpile.[xv]

The outcome of these regulatory developments will have tangible effects on individuals and businesses alike. If FIT21 is successfully enacted and Executive Order 14178 is effectively implemented, a clear framework could reduce uncertainty, attract institutional investment, and provide businesses with well-defined operational guidelines. For everyday users, this could mean enhanced consumer protections, more reliable cryptocurrency exchanges, and broader adoption of digital assets in mainstream financial services. However, the absence of comprehensive regulations in the interim continues to pose risks, including the potential for fraud, market manipulation, and lack of investor recourse in cases of misconduct. Until a robust legal structure is fully implemented, cryptocurrency markets will remain vulnerable to these challenges, reinforcing the need for a balanced yet effective regulatory framework.

[i] See SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308 (S.D.N.Y. 2023) (distinguishing between institutional and secondary market sales of digital assets in the securities analysis); see also SEC v. Terraform Labs Pte. Ltd., 684 F. Supp. 3d 170 (S.D.N.Y. 2023) (finding that algorithmic stablecoins and governance tokens constituted investment contracts under the Howey test); see also CFTC v. My Big Coin Pay, Inc., 334 F. Supp. 3d 492 (D. Mass. 2018) (holding that virtual currencies fall within the CFTC’s jurisdiction as commodities under the Commodity Exchange Act).

[ii] See SEC v. Coinbase, Inc., 2025 U.S. Dist. LEXIS 3223, at *4 (S.D.N.Y. Jan. 7, 2025) (“In the seminal case of SEC v. W.J. Howey Co., the Supreme Court expounded on this definition of “security[.]”).

[iii] See SEC v. W. J. Howey Co., 328 U.S. 293, 301 (1946) (“The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.”).

[iv] See Ripple Labs, Inc., 682 F. Supp. at 326 (“Based on the totality of circumstances, the Court finds that reasonable investors, situated in the position of the Institutional Buyers, would have purchased XRP with the expectation that they would derive profits from Ripple’s efforts.”).

[v] See id. at 331 (“Therefore, having considered the economic reality and totality of circumstances, the Court concludes that Ripple’s Other Distributions did not constitute the offer and sale of investment contracts.”).

[vi] See Terraform Labs Pte. Ltd., 684 F. Supp. at 183 (“To encourage more transactions, Kwon and others at Terraform promised investors that they would devote much of the company’s earnings to expanding and improving the Terraform ecosystem and its crypto-asset products.”).

[vii] See id. at 195 (“[T]he fact that most of the UST coins were deposited in the Anchor Protocol independently rendered these tokens investment contracts, indeed investments that were touted as being capable of being able to generate future profits of as much as 20%[.]”).

[viii] See id. at 198 (“Simply put, secondary-market purchasers had every bit as good a reason to believe that the defendants would take their capital contributions and use it to generate profits on their behalf.”).

[ix] See CFTC v. My Big Coin Pay, Inc., 334 F. Supp. 3d 492, 497 (D. Mass. 2018) (“[Defendants] take the position that in order to satisfy the CEA’s “commodity” definition, the specific item in question must itself underlie a futures contract.”).

[x] Id. at 496–97 (explaining that “[t]he text of the statute supports plaintiff’s argument[,]” that a commodity “is broader than any particular type or brand of that commodity.”).

[xi] See id. at 498 (“[I]t is undisputed that there is futures trading in virtual currencies (specifically involving Bitcoin). That is sufficient, especially at the pleading stage, for plaintiff to allege that My Big Coin is a ‘commodity’ under the Act.”).

[xii] See H.R. 4763, 118^th Cong. (2023).

[xiii] See id.

[xiv] See Exec. Order No. 14,178, 90 Fed. Reg. 8647 (Jan. 23, 2025); see also Julia Shapero, Trump Signs Executive Order Establishing Crypto Working Group, The Hill (Jan. 23, 2025, 4:47 PM), https://thehill.com/business/5103660-trump-signs-executive-order-establishing-crypto-working-group/ (“President Trump signed an executive order . . . establishing a working group on digital assets led by David Sacks, the White House czar for artificial intelligence (AI) and cryptocurrency.”).

[xv] See Exec. Order No. 14,178, 90 Fed. Reg. at 8648–49.