On August 18, 2026, the Securities and Exchange Commission (SEC) proposed Regulation Crypto Assets, a first-of-its-kind regulatory framework that would create a tailored offering regime for certain investment contracts involving crypto assets (the "Proposed Rule"). The Proposed Rule builds on the SEC's March 2026 interpretive release (as detailed in our prior client alert) by addressing when crypto assets are offered and sold as part of an investment contract and represents the SEC's latest effort to develop a framework specifically designed for crypto asset transactions. The SEC's goal with the Proposed Rule is to help reduce compliance costs and delays for issuers caused by regulatory uncertainty while ensuring that purchasers are adequately protected and well informed. If adopted, the Proposed Rule would create two new exempt offering pathways, establish a safe harbor for determining when a crypto asset is no longer subject to an investment contract, and preempt certain state securities registration and qualification requirements for qualifying offerings and certain secondary-market transactions.
As background, the so-called Clarity Act, a proposed federal law that would create a new and comprehensive framework for crypto assets in the U.S., remains in legislative uncertainty. President Donald Trump publicly pushed Congress to pass the bill on August 19, just one day after the SEC release. If the Clarity Act passes, it would fundamentally change crypto asset regulation in ways mostly favorable to the industry and shift much of the regulatory power over crypto assets and players from the SEC to the Commodity Futures Trading Commission. The fate of the Clarity Act remains unclear. The Proposed Rules would seem to be a way for the SEC to improve regulatory certainty around crypto assets even if the Clarity Act does not pass.
The Proposed Rule would create two new exemptions from the registration requirements of section 5 of the Securities Act for what the SEC calls "Covered Investment Contracts." A "Covered Investment Contract" is defined as a contract, transaction, or scheme involving a crypto asset that constitutes an investment contract. The investment contract must meet three requirements: (1) a crypto asset is subject to the investment contract; (2) the crypto asset is not a security; and (3) no asset other than the crypto asset (including any security or non-security asset) is subject to the investment contract.
One proposed new exemption, the Startup Exemption, is intended to provide a regulatory runway for issuers developing a blockchain network or application. It would allow issuers to raise up to $5 million during a four-year period for any "Covered Transaction." A Covered Transaction is an offer, sale, or other distribution of a Covered Investment Contract under the Startup Exemption, including capital-raising transactions and distributions made to encourage participation in or development of a blockchain network or application. An issuer must satisfy all of the following conditions to qualify for the Startup Exemption:
- The Covered Transaction must occur during the period beginning after the issuer files a Notice of Reliance (Form NOR) and ending on the earlier of (i) four years after that filing or (ii) the date the issuer files a Transition Report (Form TR);
- The issuer must be an entity, an individual, or a group of individuals or entities; provided, however, that if the issuer is a group, each member (or an authorized person for that member) must sign Form NOR and Form TR, provide the certifications required by those forms, and, individually and collectively, satisfy each exemption condition;
- The issuer and its affiliates cannot have relied on this exemption with either the same crypto asset or a substantially similar crypto asset;
- The aggregate offering price of the Covered Transaction, together with the gross proceeds from all prior Covered Transactions (including any Covered Transactions happening during the current Covered Transaction) cannot exceed $5 million;
- The issuer must disclose all information required in both Form NOR and Form TR as well as publicly provide and update the disclosures required by new Rule 103, including, among other things, information about the material terms of the investment contract and the offering, the name and material characteristics of the crypto asset, management, and conflicts of interest; and
- The issuer must satisfy the applicable requirements in Subpart A of the Proposed Rule, including the proposed bad-actor disqualification in new Rule 104.
The second exemption, the Fundraising Exemption, would provide for a larger capital-raising pathway for Covered Investment Contracts than what would be permitted under the Startup Exemption. Modeled after Regulation A of the federal securities laws, the Fundraising Exemption would provide two tiers: issuers could offer up to $20 million in a Tier 1 offering or $75 million in a Tier 2 offering during each 12-month period. An issuer would qualify for this exemption only if it meets, among other conditions, the following:
- The issuer must be organized in the United States, have a majority of its executive officers or directors who are U.S. citizens or residents, more than 50% of its assets located in the United States, and principal administration of the business in the United States;
- The issuer must not be a development stage company or investment company registered under the Investment Company Act of 1940;
- The issuer must file an offering statement on the new Form 1-CRYPTO before engaging in offers or sales;
- The issuer must file annual, semiannual, and current reports on the forms prescribed by the SEC;
- The issuer must satisfy the applicable requirements in Subpart A of the Proposed Rule, including the proposed bad-actor disqualification in new Rule 104.
In addition to creating new exempt offering pathways, new Rule 400 would establish a non-exclusive safe harbor under which a Covered Investment Contract would be deemed to have ceased to exist if the issuer has completed or otherwise permanently ceased all "essential managerial efforts" it represented or promised purchasers it would undertake and is no longer making, or intending to make, additional representations regarding future managerial efforts. To rely on the safe harbor, the issuer must file a Form TR certifying that these conditions have been satisfied and providing an analysis supporting that determination.
According to the SEC, the safe harbor is intended to provide greater certainty about when a crypto asset is no longer subject to an investment contract and therefore is no longer subject to the federal securities laws on that basis. The proposal also makes clear, however, that the safe harbor would be non-exclusive and would not prevent an issuer from arguing under the Howey test that an investment contract has ceased to exist without relying on new Rule 400.
The proposed safe harbor addresses a central question in applying the Howey test to crypto transactions: whether, and for how long, purchasers reasonably expect profits from the essential managerial efforts that the issuer represented or promised it would undertake. The safe harbor would allow the issuer to certify that it has completed or permanently ceased all essential managerial efforts it represented or promised, and that it is making no new promises to undertake such efforts. Once the safe-harbor conditions are satisfied, the SEC would treat that covered investment contract as having ceased to exist and the protections of the securities laws would no longer be available to holders. This is the Rubicon of crypto; we expect many comments in the public comment period on this aspect of the proposed rules.
If adopted, the exemptions would give issuers greater flexibility in structuring capital raises while requiring disclosures tailored to information purchasers are likely to consider material in evaluating crypto asset projects. New Rule 400 would also provide a clearer framework for determining when a crypto asset is no longer subject to an investment contract. In addition, certain state securities registration and qualification requirements would be preempted for offerings conducted under the Proposed Rule or qualifying secondary-market transactions, reducing the regulatory burden of conducting nationwide offerings and facilitating secondary-market liquidity, provided issuers remain current with applicable disclosure and reporting requirements.
The Proposed Rule represents a significant step in the SEC's ongoing effort to develop a regulatory framework tailored to crypto asset markets. Because it remains subject to public comment and may be revised before adoption, market participants should continue to monitor developments closely.
Venable will continue to monitor developments relating to the Proposed Rule and the evolving regulatory landscape for digital assets. If you have questions about the Proposed Rule or its potential impact on your business, please contact the authors of this alert or any member of Venable's Blockchain and Digital Currencies group.
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This memorandum is provided for information purposes only and is not intended to provide legal advice. Such advice may be provided only after analysis of specific facts and circumstances and consideration of issues that may not be addressed in this document.