Call for Clear Cryptocurrency Regulation
As discussions around cryptocurrency regulation evolve, a collective of 21 state attorneys general (AGs) has urged the Securities and Exchange Commission (SEC) to provide a clear framework for the regulation of digital assets. This letter, spearheaded by Iowa Attorney General Brenna Bird and sent on October 20, was a response to Commissioner Hester Peirce’s statement from February 2025 titled “There Must Be Some Way Out of Here.” In her statement, Peirce invited public opinion on the SEC’s regulatory approach toward cryptocurrencies, presenting 48 questions that addressed the classification of digital assets, the regulation of trading and custody, as well as identifying which tokens should be classified under securities law. She emphasized the necessity for a “predictable, legally precise” regulatory environment and raised the question of whether certain digital assets should be deemed as payment methods rather than investment contracts. The AGs endorsed the need for clarity but warned that overly broad definitions could undermine essential state authorities.
Regulation and Usage of Digital Assets
The debate centers on the usage of digital assets and the jurisdiction of their regulation. Numerous states currently regulate digital value transfers, including activities involving stablecoins, as money transmission, which requires state licensing and oversight. The AGs explained that these regulations are in place to mitigate fraud and ensure the safety of digital transactions. An overarching federal definition could potentially disrupt these state regulations, leading to a climate of regulatory ambiguity. Peirce’s call for comments acknowledged the convergence of investment and utility in digital assets, questioning how to manage “tokenized securities” that aim to maintain stable values and may also serve as payment methods. This highlights the SEC’s challenge in differentiating between tokens that function like securities and those that facilitate blockchain-based payment systems. The process of tokenization, which involves placing financial assets onto blockchains, complicates the matter further. Peirce noted that digitized securities could enable quicker and safer transactions, but the AGs cautioned that without precise definitions, even standard tokenized exchanges could inadvertently fall under securities regulations, hindering their adoption for payments, remittances, and international trade.
State Consumer Protections at Risk
The AGs emphasized that states have established robust consumer protection laws tailored to the digital asset landscape. They cautioned that broad federal definitions could override these protective measures and diminish enforcement capabilities. State statutes on unfair and deceptive acts and practices (UDAP) facilitate swift responses to misleading marketing and undisclosed fees, a level of enforcement that federal securities regulations may not always support. The letter referenced a recent case where Iowa’s attorney general utilized such authority to take legal action against crypto ATM operators accused of deceptive practices, underscoring the argument for maintaining flexibility in rapidly evolving markets.
The Dual Nature of Cryptocurrency
Peirce’s statement illustrates the increasingly blurred distinction between viewing cryptocurrency as an investment and as a medium of exchange. She queried whether stablecoins and staking tokens should be classified under securities law and whether the SEC should acknowledge “categories of crypto assets … that do not fall within its authority.” The AGs advocated for this differentiation, warning that categorizing all digital assets as securities could expose states to legal risks, even for routine activities, such as managing unclaimed digital assets belonging to residents. The letter indicated that the lack of clarity could force states to liquidate cryptocurrency holdings to steer clear of infringing federal securities regulations.
Implications for Financial Institutions
The potential ramifications for financial institutions are significant. If cryptocurrency transactions are classified as securities, even basic transfers could invoke expensive registration and custody requirements. Additionally, the fragmented state oversight creates compliance challenges for national banks and FinTech companies that are leveraging blockchain technology. This complexity emphasizes the urgent need for a coherent regulatory framework that accommodates both federal and state interests in the rapidly evolving digital asset landscape.
