Securities or Commodities? Inside the Long Turf War Over Who Regulates Crypto in America

For most of the past decade, the central question in American crypto policy has been deceptively simple: is a given token a security or a commodity? The answer determines whether the Securities and Exchange Commission or the Commodity Futures Trading Commission is the primary regulator, which disclosure rules apply, whether exchanges need to register as securities venues and how much protection retail investors receive. The question has never been fully resolved, and the effort to resolve it has become one of the longest-running jurisdictional battles in modern US financial regulation.

Two agencies, two philosophies

The SEC was created in the 1930s to protect investors through disclosure. Its core test for what counts as an investment contract, and therefore a security, comes from a 1946 Supreme Court case involving citrus groves, known as the Howey test. It asks whether people invest money in a common enterprise with an expectation of profit from the efforts of others. Many token sales look like that. The CFTC, by contrast, oversees futures and derivatives markets and has authority over fraud in spot commodity markets, but not a full regulatory regime for them. Bitcoin has generally been treated as a commodity by both agencies, which is why bitcoin futures have traded on CFTC-regulated venues since 2017.

The philosophical difference matters. Securities regulation is intensive: registration, periodic disclosure, and rules on custody, conflicts and trading venues. Commodities regulation of spot markets is lighter, focused on fraud and manipulation. The industry has long preferred the CFTC for that reason; consumer advocates have preferred the SEC for the same reason.

How the battle played out

Under its previous leadership, the SEC argued that most tokens other than bitcoin were securities and brought cases against exchanges and issuers. Courts gave mixed signals. In a 2023 ruling in the Ripple case, a federal judge found that sales of a token to institutional investors were securities transactions but that programmatic sales on exchanges were not, which complicated the SEC's theory. Other courts took different views. The resulting uncertainty was, depending on one's perspective, either a failure of regulation or a failure of legislation.

Since early 2025, the SEC under new leadership has abandoned most of those cases and launched an initiative to write rules for crypto assets, including exemptions and a clearer taxonomy. The two agencies have also signaled more coordination, issuing joint statements about allowing registered venues to handle certain spot crypto products. But agency cooperation is not the same as a statutory division of labor, and a future leadership could revisit it.

Every definition in a crypto bill is a transfer of power from one agency to another. That is why the definitions take years.

What Congress is trying to do

The House passed a market structure bill, the CLARITY Act, in July 2025 with bipartisan support. Its central idea is to classify tokens according to how decentralized and functional their underlying network is. Tokens tied to sufficiently mature, decentralized blockchains would be treated as digital commodities under CFTC oversight, while tokens in earlier stages, where a development team still exercises control, would remain subject to SEC disclosure. The bill would create new registration categories for crypto exchanges, brokers and dealers at the CFTC.

The Senate has taken its own path, with the Banking and Agriculture committees each responsible for part of the jurisdiction. Negotiations have been slow and contentious, snagging on issues such as how to treat decentralized finance, how much authority the SEC retains, ethics provisions for officials with crypto holdings and whether platforms can share stablecoin reserve income with users. Whatever form a final law takes, it will need to reconcile these approaches.

The practical stakes

• Budget and capacity: the CFTC is far smaller than the SEC and would need significant new resources to supervise spot crypto markets.
• Regulatory capture concerns: critics worry that routing crypto to the lighter-touch regulator invites industry influence.
• Durability: a statutory settlement would outlast changes in agency leadership, which is what institutional investors want most.

Why it matters beyond crypto

The turf war is also a test of how the US regulates financial innovation in general. Tokenized stocks, bonds and funds are moving from pilots toward production. If the law draws a sharp line between crypto commodities and tokenized securities, it will shape where that innovation happens and who supervises it. Other countries are watching, because US definitions have a way of becoming global defaults.

The debate has also become a proxy for broader arguments about the administrative state. Supporters of a CFTC-led model argue that agencies should not stretch old statutes to new technologies without explicit congressional authority. Supporters of SEC primacy argue that investor protection principles are technology-neutral and that a new category invites evasion. Both sides are, in their own way, arguing about who gets to make law.

The bottom line

The SEC-CFTC contest is not a bureaucratic sideshow. It is where the United States will decide how much crypto looks like the stock market and how much like a commodities pit, and therefore how much protection ordinary investors can expect. Until Congress settles it in statute, policy will remain dependent on who leads the agencies, and markets will price that uncertainty accordingly. This is policy analysis, not investment advice.