Is crypto a security? Howey test and SEC 2026 rules

“Is this crypto a security?” sounds like a lawyer’s question, but it shapes almost everything about how a token can be sold in the United States: whether the issuer must register an offering, what it has to disclose and which rules apply to the platforms that list it. For years the answer came case by case. In 2026, the SEC set out a new framework.

This guide explains the Howey test, what the SEC decided in March 2026, the rules it proposed in August 2026 and what it all means for ordinary investors.

Why it matters

US securities laws require offers and sales of securities to be registered with the SEC or to use an exemption, and they come with disclosure duties and anti-fraud rules. If a token is a security, or is sold as part of an investment contract, those rules apply. If it isn’t, other rules may apply instead, for example to commodities.

The Howey test

The definition of “security” includes an investment contract. To decide whether something is one, the SEC applies a test the Supreme Court set out in SEC v. W.J. Howey Co. (1946), known as the Howey test.

In the SEC’s 2026 description, a non-security asset becomes subject to an investment contract when an issuer offers it by inducing an investment of money in a common enterprise, with representations or promises to undertake essential managerial efforts from which buyers would reasonably expect to derive profits.

The SEC itself has acknowledged that it can be difficult to apply the Howey test to crypto assets.

2017 to 2024: case by case

In July 2017 the SEC issued the DAO Report, finding that tokens sold by “The DAO” were offered and sold as investment contracts and therefore securities. In the years that followed, the SEC says it addressed crypto on an ad hoc basis, applying the Howey test to each token in the context in which it was sold. See what is a DAO?

March 2026: five categories

On 17 March 2026 the SEC issued an interpretation, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, effective 23 March 2026, with accompanying guidance from the CFTC. It classified crypto assets into five categories:

Category	Security? (SEC’s view)
Digital commodities	Not themselves securities
Digital collectibles	Not themselves securities
Digital tools	Not themselves securities
Stablecoins	May or may not be, depending on their characteristics
Digital securities	Securities

What the categories mean, in the SEC’s words:

A digital commodity derives its value from the programmatic operation of a functional crypto system and from supply and demand, rather than from the expected efforts of others, and doesn’t give rights such as a passive yield or a share of a business’s income. The SEC’s examples, based on their characteristics as of the date of the release, include Bitcoin (BTC), Ether (ETH), Solana (SOL), XRP, Cardano (ADA), Dogecoin (DOGE) and others.
A digital collectible is an on-chain analogue of a physical collectible. The SEC gives meme coins as an example, saying they’re typically acquired for artistic, entertainment, social and cultural purposes, with value driven by supply and demand.
A digital tool performs a practical function, such as a membership, ticket, credential or identity badge.

The SEC noted that some crypto assets may not fit any of these categories, and some may have hybrid features. Being in a non-security category doesn’t make a token a good investment. See memecoins explained.

Becoming, and ceasing to be, part of an investment contract

The 2026 interpretation’s most important idea is that a crypto asset that isn’t a security can still be sold as part of an investment contract, which is a security:

How it starts: what matters is how the issuer markets and promotes the asset. If the issuer induces investment with promises of essential managerial efforts that buyers expect to produce profits, the asset is subject to an investment contract, and secondary market sales are securities transactions too.
How it ends: the asset separates from the investment contract when buyers can no longer reasonably expect the issuer’s promises to remain connected to it. The SEC said this happens when the issuer has fulfilled its promises, or when buyers wouldn’t reasonably expect it to be able to fulfill or continue them.

Activities the SEC said don’t involve securities

The same March 2026 interpretation looked at common crypto activities, and concluded that, in the circumstances it described, these don’t involve the offer and sale of securities:

Activity	The SEC’s reasoning, in brief
Protocol mining, solo or in a pool	Miners contribute their own computing power and are paid for a service to the network, not profits from others’ managerial efforts. A pool operator’s role is administrative
Protocol staking	Rewards come from the network’s protocol for validation services
Staking receipt tokens (liquid staking)	A receipt for a non-security asset just evidences the deposited asset; the token doesn’t generate rewards itself. A receipt for a security is a security
Airdrops where recipients give nothing in exchange	There’s no “investment of money”, the first element of the Howey test. Airdrops that require buying something or doing tasks after they’re announced aren’t covered

Each conclusion depends on the facts the SEC described, and the SEC said its views supersede earlier staff statements on these topics. See bitcoin mining explained, liquid staking explained and crypto airdrops explained.

Stablecoins and digital tools

Two of the SEC’s categories deserve a closer look:

Stablecoins may or may not be securities, depending on their characteristics. Separately, the GENIUS Act of July 2025 says payment stablecoins issued under its regime are not securities, with their own reserve and disclosure rules. See stablecoins explained.
Digital tools, tokens with a practical function such as a membership, ticket, credential or identity badge, aren’t securities in the SEC’s view. Its examples include Ethereum Name Service domain names and an NFT conference ticket. See what are NFTs?

August 2026: proposed Regulation Crypto Assets

On 21 August 2026, the SEC published a proposed rule called Regulation Crypto Assets, with comments due by 20 October 2026. It would create a tailored offering regime for investment contracts involving crypto assets:

a startup exemption for offerings of up to $5 million over a four-year period;
a fundraising exemption for offerings of up to $75 million in each 12-month period, with financial statements and ongoing reporting;
principles-based disclosures to investors under both;
a conditional safe harbor: if its conditions are met, a crypto asset would be deemed not to be subject to an investment contract.

Issuers using the exemptions would remain subject to the anti-fraud and anti-manipulation provisions. Remember that this is a proposal: final rules could differ, or may not be adopted. The comment period closes on 20 October 2026; after that, the SEC would need to consider the comments before deciding on any final rule.

Staff statements on specific activities

Before the 2026 interpretation, SEC staff issued statements on specific topics, including meme coins, proof-of-work mining, stablecoins, protocol staking and liquid staking. The SEC stresses that staff statements have no legal force: they don’t change the law. See liquid staking explained.

What it means for investors

“Not a security” doesn’t mean safe. Many crypto assets aren’t securities and come with fewer disclosure requirements. Prices can still collapse, and fraud rules still matter. See memecoins explained.
Look at the promises. Under the SEC’s approach, what an issuer promises to do matters. Promises of profits from a team’s work are exactly what securities law is designed to cover.
Tokenized versions of securities are still securities. See tokenized stocks.
Rules are changing. Check for the latest SEC releases before relying on any of this for a decision.

For how crypto is regulated in the UK, see the UK’s new crypto rules from October 2027.

Is crypto a security? The Howey test and the SEC's new approach in 2026

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