The Howey Test in 2026: How the SEC Decides What’s a Security

Ask five crypto lawyers whether a given token is a security and you might get five different answers, and in 2026 that is not really a joke. The U.S. Securities and Exchange Commission spent the Gary Gensler years arguing that almost everything except Bitcoin met the definition. Under chair Paul Atkins it has spent the past year and a half unwinding that position, case by case, then trying to replace it with something closer to a rulebook. The result is a strange, fast moving middle period: old lawsuits are being dropped, a nearly eighty year old legal test is being reinterpreted by the same agency that has relied on it for decades, and Congress is racing to write a statute before the SEC’s own rulemaking gets there first. This piece walks through how enforcement actually works in 2026, why the Howey test is still at the center of the story, and what is genuinely still unsettled.

The One Question Behind Every SEC Crypto Case

When people talk about SEC enforcement against crypto, they usually mean one specific fight: whether a given token or arrangement counts as a security under U.S. law. That single question, first litigated over Florida citrus groves in 1946, has shaped nearly every major crypto lawsuit of the past decade, from Kik’s Kin token to XRP to the entire crop of 2023 exchange cases. We have covered the mechanical side of this before, including how a Wells notice gets issued and how the whistleblower program pays out, in our explainer on how SEC crypto enforcement actually works. This piece goes one level deeper, into the actual legal test the agency uses, how that test is being rewritten in real time, and why 2026 is turning into the year enforcement gets partly replaced by rulemaking.

It helps to separate three things that get lumped together under the phrase SEC enforcement. First, there is registration enforcement: lawsuits arguing that a token sale or platform should have registered as a security, exchange, broker, or clearing agency. Second, there is fraud enforcement, which targets lying and stealing regardless of what the underlying asset is, and which has barely slowed down. Third, and newest, there is rulemaking: the SEC writing actual regulations that would replace case by case litigation with fixed thresholds and exemptions. Under Gensler, nearly all of the agency’s energy went into the first category. Under Atkins, the first category has shrunk dramatically, the second has continued at a steady clip, and the third has gone from a speech topic to an actual item on the SEC’s own rulemaking calendar.

The Howey Test, From Orange Groves to Ethereum

Every discussion of whether a crypto asset is a security eventually traces back to a 1946 Supreme Court case involving orange groves, not blockchains. In SEC v. W.J. Howey Co., a Florida company sold buyers small parcels of citrus grove land bundled with a service contract: the company would tend the grove and sell the fruit, and the buyer would collect a share of the profits without ever having to show up. The Supreme Court held that this arrangement, land plus a service contract, was in substance an investment contract, a type of security, even though it did not look anything like a stock or a bond. The court’s test has four parts: an investment of money, in a common enterprise, with a reasonable expectation of profits, derived from the entrepreneurial or managerial efforts of others. All four elements have to be present. Miss one and the arrangement falls outside the definition, no matter how much it resembles a traditional investment.

The flexibility of the Howey test is exactly why it became the natural tool for regulating crypto token sales starting around 2017: an ICO that raised money from the public, pooled it into a single development treasury, and promised token value would rise as the team built out the network, mapped onto Howey almost perfectly. It is also why the test has become such a fight in 2026. The same flexibility that let regulators stretch Howey to cover ICOs now lets a friendlier SEC narrow it just as easily, by reinterpreting what counts as a common enterprise or whose efforts actually matter to a buyer’s expectation of profit.

How Courts Actually Applied Howey to Crypto

Three cases did more to shape crypto’s legal landscape than any others. In SEC v. Kik Interactive, a federal court ruled in 2020 that Kik’s 2017 sale of one trillion Kin tokens was an unregistered securities offering: buyers paid money into a common pool, and Kik told them directly that demand for Kin would rise as the company built out a Kin ecosystem, which checked every Howey box. Kik settled for $5 million.

The bigger fight was SEC v. Ripple Labs. In July 2023, Judge Analisa Torres issued a decision that split XRP’s history into pieces. Direct, institutional sales of XRP to sophisticated buyers who negotiated with Ripple and knew exactly where their money was going counted as unregistered securities transactions, because those buyers reasonably expected profit from Ripple’s efforts. But sales of XRP on public exchanges, where buyers had no idea whether they were purchasing from Ripple, an early investor, or another retail trader, did not meet Howey’s third and fourth prongs: there was no way to tie a blind, anonymous exchange trade to a reasonable expectation of profit from any particular seller’s efforts. That programmatic versus institutional split became the template lawyers reached for in nearly every case that followed, including the wave of exchange lawsuits filed later that year.

Then there is Terraform Labs. Unlike Kik or Ripple, the Terraform case barely needed the Howey test at all, because a jury found in April 2024 that Do Kwon and Terraform had committed outright fraud: TerraUSD’s algorithmic peg was misrepresented as more stable than it actually was, and its May 2022 collapse wiped out roughly $40 billion in value. Terraform and Kwon ultimately agreed to pay a combined $4.47 billion in disgorgement, interest, and penalties, one of the largest settlements in the agency’s history. That distinction, between an asset failing the Howey test and a scheme that is simply fraudulent, matters enormously for understanding where enforcement is headed next: registration theory has retreated hard since 2025, but fraud cases have not slowed down at all.

The Gensler Years: Regulation by Enforcement

Those cases did not happen in a vacuum. They were the product of a specific enforcement philosophy. Gary Gensler ran the SEC from April 2021 to January 2025, and his approach to crypto became known, including among critics on the commission itself, as regulation by enforcement: rather than write rules explaining which tokens counted as securities, the agency let lawsuits do that work one case at a time. Gensler’s own view, repeated in congressional testimony and interviews, was that the vast majority of tokens already met the Howey test and that platforms listing them should already know it. Whether or not that view was correct, it produced a large volume of litigation. According to Cornerstone Research, the SEC brought 125 crypto related enforcement actions and collected roughly $6.05 billion in monetary penalties during the Gensler era, compared with 70 actions and about $1.52 billion under his predecessor, Jay Clayton.

The shift away from that approach happened almost immediately after the 2024 election. Acting chair Mark Uyeda rescinded restrictive accounting guidance within his first weeks, and a new Crypto Task Force, initially led by commissioner Hester Peirce, was created on January 21, 2025, with an explicit mandate to figure out what crypto regulation should look like going forward rather than litigate it into existence. Paul Atkins was sworn in as chair that April. The change shows up cleanly in the numbers below: the SEC’s fiscal year 2025 saw a roughly 60 percent drop in crypto related enforcement actions compared with the year before, according to Cornerstone’s follow-up analysis. Worth noting: several of that fiscal year’s actions were filed before Gensler actually left office in January 2025, so only a handful genuinely originated under the new leadership across the entire year.

Jarkesy Changes the Enforcement Machine Itself

While the Howey fights were playing out over what counts as a security, a separate Supreme Court case was quietly changing how the SEC is allowed to enforce securities law at all, crypto or otherwise. In SEC v. Jarkesy, decided 6 to 3 on June 27, 2024, the court ruled that the Seventh Amendment entitles defendants to a jury trial whenever the SEC seeks civil penalties for fraud. Chief Justice John Roberts, writing for the majority, reasoned that the SEC’s antifraud provisions essentially replicate common law fraud claims, and common law fraud has always been triable to a jury. The ruling effectively ended the agency’s decades-long practice of routing contested fraud cases through in-house administrative law judges, who do not use juries, and pushed those cases into federal district court instead, according to analysis published by the Harvard Law School Forum on Corporate Governance.

Jarkesy is not a crypto case. George Jarkesy ran a hedge fund, not a token project. But its effects landed on crypto enforcement directly, because federal court litigation is slower, more expensive, and procedurally harder for the government to win quickly than an in-house proceeding, particularly once a jury is involved. Combined with a friendlier commission, Jarkesy raised the practical cost of bringing a contested crypto case right at the moment the agency’s appetite for bringing them was already shrinking. It is one reason the 2025 dismissal wave, covered next, landed the way it did: several of those cases were headed toward exactly the kind of contested federal court fight that had just gotten harder for the SEC to win quickly.

The 2025 Dismissal Wave

The clearest sign of the Howey retreat is the list of cases the SEC simply walked away from in 2025. The Commission voted in late February 2025 to dismiss its case against Coinbase. The company’s then chief legal officer, Paul Grewal, wrote on Coinbase’s blog that SEC staff had ‘agreed in principle to dismiss its unlawful enforcement case against Coinbase, subject to Commissioner approval, righting a major wrong,’ adding that ‘we’ve always maintained that we were right on the facts and the law, and today’s announcement confirms that this case should never have been filed in the first place,’ a line that doubled as a verdict on the entire Gensler-era approach, according to the Coinbase blog.

Coinbase was not alone. Kraken, ConsenSys (over its MetaMask Swaps and Staking features), and the trading firm Cumberland DRW all had their cases dismissed with prejudice within weeks of each other in March 2025. Binance and its founder Changpeng Zhao followed in late May 2025, closing out a case that had been filed back in June 2023, per CNBC. Zhao’s separate $4.3 billion Justice Department settlement and guilty plea, unrelated to the SEC case, dated back to November 2023. The SEC also quietly closed investigations, with no charges filed, into Robinhood, Uniswap Labs, OpenSea, Gemini, Crypto.com, and several others. For a full accounting of exactly which cases moved and when, see our retrospective on the shift from lawsuits to rulemaking.

For the exchanges themselves, the dismissals landed alongside a separate, EU-driven reckoning: while U.S. registration cases were dropping, several of the same platforms were simultaneously rebuilding their compliance stacks for MiCA in Europe, a dynamic we broke down in our post-MiCA scorecard comparing Coinbase, Binance, Kraken, and OKX. Two regulatory regimes, moving in opposite directions on the same companies at the same time, is not something U.S. crypto policy discussions always capture.

There is a coda worth noting. Grewal, who had become one of the industry’s most visible legal figures fighting exactly these cases, announced on July 9, 2026 that he was leaving Coinbase for an unnamed startup, staying on only as an adviser to the company’s push for a national trust charter. ‘Leading Coinbase’s legal team through the biggest fight of our industry has been the single greatest achievement of my six-year tenure,’ he said. ‘Our legal wins helped ensure crypto not only had a future in this country, but could flourish,’ according to Coindesk. His successor, Molly Abraham, had been at Coinbase as VP of legal since March 2021.

The SEC Rewrites Its Own Test

The most consequential document in crypto securities law this year did not come from a court. It came from the Commission itself. In March 2026, the SEC issued a formal interpretive release stating plainly that, in its own words, most crypto assets are not themselves securities. Unlike the staff statements that had trickled out over the prior year, this was a Commission-level interpretation, carrying more legal weight even though it is still not formal rulemaking and could be revisited by a future, differently composed commission.

The interpretation sorts crypto assets into rough categories rather than forcing every token through the same four-prong analysis from scratch, summarized in the table below. Digital commodities, network tokens like Bitcoin, Ethereum, or Solana whose value comes from programmatic operation and supply and demand rather than a promoter’s ongoing efforts, are generally not securities. Digital collectibles, a bucket that covers NFTs and meme coins, are generally not securities either, on the theory that they are valued for cultural or artistic reasons rather than a pooled expectation of profit. Digital tools, including soulbound and access tokens used for a specific function, fall outside the definition for similar reasons. Payment stablecoins sit in their own lane now, largely governed by the GENIUS Act’s reserve and disclosure rules rather than Howey. Tokenized equity and other digital securities, the fifth bucket, remain squarely inside securities law, because they are structured to pass the test on purpose.

The interpretation also reframed the common enterprise and profit-expectation prongs in ways that matter a great deal in practice. It affirmed that a common enterprise is a required element, not an optional add-on, which narrows how far the test reaches into ordinary secondary market trading. And it tied a reasonable expectation of profit much more tightly to what an issuer actually promises, in a whitepaper, a website, or a formal agreement, rather than to general market hype or a community’s own promotional activity. One useful side effect: the release describes how a token can separate from the investment contract that originally wrapped it, once the founding promises behind it have been fulfilled or abandoned, opening a plausible path for older tokens to eventually exit securities treatment even if their original sale did not.

Not every sitting commissioner has agreed with this direction. Before her own term expired in January 2026, the commission’s last Democrat, Caroline Crenshaw, argued in a series of public dissents that the new approach abandoned decades of settled case law built up over nearly eighty years of securities litigation. With her departure, the commission became all-Republican for the first time in its modern history, a structural fact that shapes how much weight to put on any of this guidance, since none of it binds a future commission with a different majority.

Staking as the Test Case

Staking is the cleanest example of how much the underlying legal analysis has shifted, because the SEC has now said the quiet part out loud. In a staff statement issued May 29, 2025, the Division of Corporation Finance concluded that protocol staking, whether done solo, through delegation, or via a custodian, does not on its own involve a securities transaction. Commissioner Hester Peirce released a companion statement the same day titled, with a bit of wordplay, Providing Security Is Not a Security, playing on the two different meanings of the word: keeping a network secure is not the same as offering a financial security. The argument is that staking rewards compensate a participant for the technical work of helping secure a network, similar to a service fee, rather than representing a return generated by a promoter’s managerial efforts on the participant’s behalf. Miss that distinction and, on paper, a huge share of the validators on networks like Ethereum could have been running an unregistered securities operation the whole time.

The Division extended the same logic to liquid staking a few months later, covering receipt tokens like the ones issued by stETH-style protocols, which matters because liquid staking receipt tokens circulate and get used as collateral throughout DeFi in ways that plain staking positions do not. We covered the mechanics of how those receipt tokens actually work, and how validators get paid underneath them, in our explainer on how stETH and rETH actually work. It is worth being precise about the limits here, though: this is staff-level and Commission-level guidance, not a statute and not a court ruling. Restaking and liquid restaking tokens, which layer additional obligations and risks on top of a staking position, are not clearly covered by any of it. A future commission, or a court presented with the right facts, could reach a different conclusion.

Project Crypto’s Three Exemptions, Decoded

If the interpretive release explained how the SEC now reads Howey, Project Crypto is the agency’s attempt to stop relying on Howey case by case altogether. Atkins first unveiled the initiative in a July 2025 speech and followed up with a more detailed framework in a March 2026 address at the DC Blockchain Summit on regulating crypto assets and building a token safe harbor. His framing was blunt: ‘This is what regulatory agencies are supposed to do: draw clear lines in clear terms,’ he said, according to the official transcript.

The framework, as currently sketched and summarized in the table below, rests on three pieces. A startup exemption would let early-stage projects, generally those less than four years old, raise up to $5 million using disclosure closer to a whitepaper than a full registration statement. A fundraising exemption would let more established projects raise up to $75 million through what the SEC calls a qualifying crypto investment contract, a structure built specifically for token sales rather than borrowed from traditional securities offerings. And an investment-contract safe harbor would let a token exit securities treatment entirely once its founding team has genuinely wound down essential managerial efforts, formalizing the separation concept described in the interpretive release.

None of this is law yet. It exists as speeches, a Commission interpretation, and now a line item on a rulemaking agenda, which is a meaningfully different thing from a rule a company can actually rely on in court. But the direction is consistent enough, and has been repeated by enough separate officials over enough months, that most securities lawyers advising token issuers in 2026 are treating it as the likely shape of things to come, while still telling clients not to bet the company on it just yet.

From Speeches to an Actual Rulemaking

Speeches and interpretive releases are not self-executing, and the SEC knows it. The real test of whether Project Crypto becomes durable policy is whether it survives the formal rulemaking process, which is exactly what started moving in July 2026. The SEC’s 2026 regulatory agenda lists three separate crypto rulemakings targeting a Notice of Proposed Rulemaking this month: a measure covering token offerings and the safe harbor itself, an update to broker-dealer net capital and customer-protection rules to accommodate firms that custody crypto, and a set of market-structure amendments for how digital asset trading venues register, according to The Block’s review of the agenda.

The custody piece deserves particular attention, because it is the least glamorous and most operationally important of the three. Broker-dealers that want to hold crypto on behalf of customers currently have to fit an asset class into net capital and customer-protection rules that were never written for it, a mismatch that has pushed most institutional custody toward specialized, non-broker-dealer custodians instead. We laid out how those custody arrangements actually differ, including who legally holds the private keys in each model, in our comparison of crypto custody providers. A workable broker-dealer custody rule could pull some of that business back toward traditional regulated finance; a poorly calibrated one could just as easily entrench the specialized custodians further.

None of this happens quickly. A Notice of Proposed Rulemaking opens a public comment period, comments have to be reviewed and often trigger revisions, and only then does the Commission vote on a final rule, which can itself be challenged in court. Realistically, even if the SEC hits its July 2026 target for proposing these rules, final versions are unlikely before 2027 at the earliest.

Congress’s Parallel Track: The CLARITY Act

The SEC’s rulemaking is not the only mechanism trying to settle this. The Digital Asset Market Clarity Act, known as the CLARITY Act, would do through statute what Project Crypto is attempting through regulation: create a durable, functional test for when a token is a security, a commodity, or something else entirely, based largely on how decentralized its network has become rather than how it was originally sold. The House passed its version, H.R. 3633, by a lopsided 294 to 134 vote in July 2025, with more than 70 Democrats crossing over. The Senate Banking Committee advanced its own version 15 to 9 in May 2026. Since then, the bill has been stuck.

As of early July 2026, the legislation sat on the Senate calendar with no floor vote scheduled, blocked by a knot of disputes that keep shifting slightly in composition but never fully resolve: restrictions on senior officials, including the president, holding crypto business interests while the government writes crypto rules; how far federal law should preempt state-level crypto regulation; disagreements over whether the minority party gets a fair shot at SEC and CFTC commissioner appointments; and a fight over stablecoin yield that has real money behind it, since platforms like Coinbase reportedly generate over a billion dollars a year from USDC-related rewards that could be reclassified as prohibited interest payments depending on how the final text reads.

There are signs of movement. A merged draft combining work from the Senate Banking and Agriculture committees, running dozens of pages longer than earlier versions and leaning harder into consumer protection language, was expected to surface as soon as the week of July 9, with an eye toward a Senate floor vote around July 20, according to Coindesk’s reporting, which cited legislative staffers cautioning that the update still had not locked in the Democratic votes it needs. The Senate returns from recess on July 13, leaving roughly three working weeks before the August recess, which realistically makes this the last window for the CLARITY Act to move in 2026. If it slips again, the SEC’s own rulemaking track becomes the only game in town for a while longer.

Fraud Enforcement Never Went Anywhere

None of this should be mistaken for the SEC going soft on crypto crime. What actually retreated is registration theory, the argument that a token itself was an unregistered security. Outright fraud, lying to investors about what their money was doing, is prosecuted under the same antifraud provisions regardless of which administration is in charge. Terraform and Do Kwon’s $4.47 billion settlement, described earlier, is the clearest example of the principle: an algorithmic stablecoin is not a security in the way a stock is, but misrepresenting its stability to induce billions of dollars in investment is fraud whether it happens on Wall Street or on a blockchain. The SEC’s enforcement docket through 2026 continues to include exactly this kind of case, typically smaller in scale but identical in theory: investors solicited with false claims about returns, safeguards, or how their money was actually being used.

The distinction matters for anyone trying to predict where enforcement goes from here. A team that registers properly, discloses honestly, and builds what it says it is building has a much clearer path under the 2026 framework than it did in 2022. A team that lies about reserves, fabricates trading results, or promises safeguards it never built is not going to find shelter in any safe harbor, no matter how the Howey test eventually gets codified.

A Commission in Flux, and What It Means for You

All of this is happening against a backdrop of real turnover at the top of the agency. Commissioner Hester Peirce, the closest thing the crypto industry has had to a consistent advocate inside the SEC and the original architect of the Crypto Task Force, announced in May 2026 that she will leave the Commission in November 2026 to take a faculty position at Regent University School of Law, according to reports on her departure. After she leaves, only Atkins and Uyeda will remain as sitting commissioners on a body designed to hold five, following Caroline Crenshaw’s exit when her term expired in January 2026. Speculation about Peirce’s eventual replacement has centered on Ammon Simon, currently chief counsel on the Senate Banking Committee and a former Peirce advisor, though no nomination had been made as of this writing.

None of this changes the underlying legal reality that anyone building or investing in crypto has to work with today. A few things are worth keeping in mind heading into the back half of 2026:

• Staff statements, interpretive releases, and even Commission-level guidance are not statutes. An all-Republican commission today can look very different after the 2028 election, and none of the 2025 to 2026 guidance legally binds a future one.
• The safe harbor exemptions everyone is discussing do not exist yet as usable rules. Until a Notice of Proposed Rulemaking is published, commented on, and finalized, a token issuer cannot actually rely on the $5 million or $75 million thresholds in a courtroom.
• Registration theory retreating is not the same as deregulation. Fraud, market manipulation, and misrepresentation are still prosecuted aggressively, and the Jarkesy-driven shift toward federal court just means those cases move slower and go to a jury, not that they stop.
• The CLARITY Act, if it passes, would lock a version of this framework into statute, a meaningfully more durable outcome than agency guidance. Its fate over the next few weeks matters as much as anything the SEC does on its own.
• Watching who replaces Peirce on the Crypto Task Force, and whether the Senate confirms a fifth commissioner at all before 2027, will say a lot about whether the current approach hardens into lasting policy or drifts once the political winds change again.

Frequently Asked Questions

What is the Howey test and why does the SEC use it for crypto?

The Howey test comes from a 1946 Supreme Court case, SEC v. W.J. Howey Co., and asks whether an arrangement involves an investment of money in a common enterprise with a reasonable expectation of profit derived from the efforts of others. If all four elements are present, the arrangement is an investment contract, a type of security, regardless of what it is called. The SEC has applied this same test to crypto token sales since around 2017 because the test focuses on economic substance rather than the form of the asset, and many token sales, particularly ICOs that pooled investor money into a shared development treasury, fit the pattern closely.

Is Bitcoin considered a security by the SEC?

No. Bitcoin has consistently been treated as a digital commodity rather than a security, including under the SEC’s March 2026 interpretive release, because its value comes from decentralized network operation and open market supply and demand rather than the managerial efforts of an identifiable promoter or company. Ethereum has generally received the same treatment since its network became sufficiently decentralized. The analysis can differ for other tokens, particularly newer ones sold directly by a company that is still actively building the underlying project.

Why did the SEC drop its lawsuits against Coinbase, Kraken, and Binance?

The Commission voted to dismiss these cases in 2025 after a change in leadership following the 2024 election, concluding that the underlying registration theories, that the platforms were operating as unregistered exchanges, brokers, or dealers, did not warrant continued litigation. Coinbase’s dismissal was filed in February 2025, Kraken, ConsenSys, and Cumberland DRW followed in March 2025, and Binance’s case was dismissed with prejudice in May 2025. The moves reflected a broader policy shift under chair Paul Atkins toward writing rules for the industry rather than litigating token by token.

What is Project Crypto and what does it change?

Project Crypto is the SEC’s initiative, unveiled by chair Paul Atkins starting in mid-2025, to replace case by case Howey litigation with clearer, rules based exemptions. As proposed, it would include a startup exemption for early projects raising up to $5 million, a fundraising exemption for larger raises up to $75 million, and a safe harbor letting a token exit securities treatment once its founders have wound down their managerial role. None of it is final law yet; as of mid-2026 it exists as speeches, a Commission interpretation, and a newly opened rulemaking process.

What is the CLARITY Act and has Congress passed it?

The CLARITY Act, formally the Digital Asset Market Clarity Act (H.R. 3633), is a bill that would create a statutory framework for deciding when a crypto asset is a security, a commodity, or neither, largely based on how decentralized its network has become. The House passed its version in July 2025. As of July 2026, the Senate had not scheduled a floor vote, with the bill stalled over disputes including officials’ crypto business ties, federal preemption of state rules, and stablecoin yield economics, though a revised draft was expected to surface in mid-July 2026.

Written by the HOGE Wire policy desk.