SEC Expands Digital Asset Oversight: A New Era For Crypto Regulation

In Brief

A new Senate bill could give the SEC sweeping authority over digital assets, sparking debate over whether it provides clarity or stifles crypto innovation.

As cryptocurrency adoption accelerates, U.S. regulators are reshaping the rules of the game. A new Senate bill, pitched as a way to divide responsibilities between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), could instead give the SEC unprecedented power over a broad swath of the digital asset market

Supporters say the bill offers long-needed clarity. Critics warn it could extend the SEC’s jurisdiction to established tokens like XRP indefinitely, raising fears of “regulatory overreach” that could slow innovation.

A Bill That Could Change the Game

Ripple’s Chief Legal Officer, Stuart Alderoty, has been vocal about the potential downsides. In his view, the legislation’s definition of “ancillary assets” is so broad that it could keep digital assets tied to an investment contract under the SEC’s watch forever — even after they become fully functional network tokens.

He argued in a letter to the Senate Banking, Housing, and Urban Affairs Committee that this approach “blurs rather than clarifies” the regulatory landscape.

The bill aims to draw clear lines between SEC and CFTC oversight, but Alderoty said it risks doing the opposite. By defaulting most crypto assets to the SEC’s jurisdiction, it would subject projects to a gatekeeping and disclosure system they were never designed for. Such a regime could turn the SEC into a central arbiter for an industry built on decentralization.

Streamlining the Presidential Working Group’s Role

This debate is unfolding against a backdrop of broader federal action. In July 2025, the Presidential Working Group on Digital Asset Markets released a report urging Congress and regulators to strengthen U.S. leadership in blockchain technology. The report included over 100 recommendations, from stablecoin legislation to new market-structure laws.

While its tone was pro-innovation, it still emphasized giving agencies — particularly the SEC and CFTC — more explicit authority over different segments of the market. Among its suggestions: creating safe harbors for token projects, modernizing trading rules for non-security digital assets, and clarifying custody requirements. In essence, the Working Group backed a regulatory framework that would keep both agencies deeply involved in crypto oversight.

The Howey Test: Still the SEC’s Tool of Choice

One of the flashpoints in the current debate is the Howey test, the decades-old legal standard used to determine what counts as a security. Alderoty warned that relying on it without clear boundaries gives regulators “near-absolute power” over crypto markets.

He pointed to the risk that well-established assets like Ethereum and XRP could be labeled securities simply because they were once sold in a manner resembling an investment contract. Such a designation could mean years of added compliance, affecting how tokens are sold, traded, and integrated into payment systems

Legislative Fixes: A Path Toward Clarity

To prevent such outcomes, Alderoty has called for targeted legislative changes. His proposals include exempting long-traded tokens from new SEC oversight, setting clear limits on redefining related-party transactions, and protecting protocol-level activities like staking from being classified as securities transactions.

He also advocates for federal preemption over conflicting state laws in key areas of digital asset regulation, while leaving fraud and consumer protection to state authorities. The goal, he said, should be “clear and adaptive rules” that balance innovation with investor protection.

Innovation vs. Compliance

The SEC’s expanding role could reshape the startup landscape. On one hand, explicit rules might replace the current patchwork of enforcement actions, giving entrepreneurs more confidence

On the other, broader definitions of securities and exchanges could impose heavy compliance costs — especially for small firms without the resources to navigate complex broker-dealer, custody, and disclosure rules.

For fintech startups, the challenge lies in adapting quickly enough to survive in a market where compliance may no longer be optional. Some industry observers say this could lead to a “consolidation wave” in which only larger, better-funded companies can afford to keep pace.

The Bigger Picture: Balancing Power and Progress

The SEC’s shift from active enforcement to structured guidance to approve crypto’s engagement in mainstream finance while keeping swindlers and manipulators in check. However, if the new bill passes, critics suggest it may create a framework of federal control that prevents the experimentation of the market.

What’s at stake is more than regulatory turf. It’s whether the U.S. can foster a digital asset ecosystem that remains competitive with other jurisdictions moving toward lighter-touch frameworks. Without careful drafting, lawmakers risk adding to the very uncertainty they claim to be reducing.

Pessimism or Caution?

The battle over the SEC’s role in crypto regulation is more than a fight over who gets to enforce the rules. It’s about the future structure of the U.S. digital asset market

Those who support expanded oversight believe it will offer certainty, clarify the space, and protect consumers. Those who oppose it believe it will further entrench the SEC as an all-powerful gatekeeper which will chill innovation and push talent out of the country.

Finding the right balance — one that supports decentralization while maintaining accountability — may be the most difficult part of the maturation of the crypto industry. For now, the debate continues, with the result coming to shape the industry for the foreseeable future.