SEC proposes Regulation Crypto Assets

Covered investment contract key takeaways

The proposal creates a tailored offering framework for a "covered investment contract," which is an investment contract meeting all of the following criteria: (1) the 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 is subject to the investment contract.

Key components

Crypto one-time startup exemption: Up to $5 million

The proposal would permit a one-time startup exemption for certain offers, sales and other distributions of covered investments contracts. Issuers that qualify for this exemption would be permitted to raise up to $5 million over a four-year period without being subject to the Securities Act of 1933 registration requirements. Qualifying crypto issuers would be required to:

• Make public filings accessible and free of charge
• Provide certain principles-based disclosures to investors
• Comply with anti-fraud and anti-manipulation provisions of the federal securities laws

"This proposal creates a regulatory pathway for early-stage crypto networks that previously faced significant uncertainty regarding token launches and fundraising activities," Veith said.

Crypto fundraising exemption: up to $75 million

A second exemption would permit issuers to raise larger crypto offerings of up to $75 million in a 12-month period without being subject to the Securities Act registration requirements, under a two-tier system:

• Tier 1: Up to an aggregate of $20 million in a 12-month period, including no more than $6 million offered by selling securityholders who are affiliates of the issuer
• Tier 2: Up to an aggregate of $75 million in a 12-month period, including no more than $22.5 million offered by selling securityholders who are affiliates of the issuer

Issuers using this exemption would be required to publicly file offering statements on Form 1-CRYPTO on the SEC's EDGAR database, including the following information:

• Principles-based disclosures, similar to the proposed startup exemption disclosures
• A discussion of the issuer’s financial condition
• Financial statements, which for Tier 2 offerings would require an independent audit

This proposed framework resembles an adapted version of Regulation A for covered investment contracts.

"This approach could become the preferred SEC-compliant fundraising mechanism for many token issuers seeking substantial growth capital," Veith said.

Investment contract safe harbor

"Perhaps the most important aspect of the proposal is the formalization of a conditional safe harbor under proposed Rule 400," Veith said.

Under this framework, a covered investment contract would cease to exist. The crypto asset within the covered investment contract would no longer be considered a “security” in the definitions under the Securities Act of 1933 and Securities Exchange Act of 1934 if specified conditions are met, particularly when the issuer has completed or permanently ceased the managerial efforts promised to investors.

Historically, one of the biggest unresolved questions in crypto regulation has been when tokens stop being securities, which was initially contemplated in the March 2026 interpretive release and would be codified within the regulations if adopted..

"It's significant that the SEC is now proposing a formal mechanism for a crypto asset to transition out of securities law treatment," Veith said.

Federal preemption of state securities registration

The proposal would also preempt certain state or "blue sky" registration requirements for offerings conducted under Regulation Crypto Assets and for certain secondary market transactions. This could significantly reduce compliance burdens and facilitate broader nationwide distribution of crypto investment contracts.