Key Takeaways
- • Bitwise and the Hyperliquid Policy Center urged the U.S. SEC, in separate comment letters submitted ahead of the Oct. 20 deadline, to clarify token classification, airdrop, and secondary market trading rules under the proposed "crypto asset regulation."
- • Bitwise asked for standards that let asset managers determine whether securities laws apply to individual cryptocurrencies using only publicly available information, including how far market participants may rely on issuer TR form filings confirming termination of an investment contract.
- • The Hyperliquid Policy Center called for expanding the conditional safe harbor, which it said would apply only after a project's development is complete, and for clarity on airdrops paid as network participation rewards and on token buybacks.
- • Both groups flagged regulatory uncertainty for exchanges and decentralised exchanges, including whether token intermediation by unregistered brokers or free trading through on-chain protocols would be permitted.
- • Former SEC enforcement official John Reed Stark and Duke University professor Lee Reiners argued in an Oct. 16 comment letter that the proposal should be withdrawn in full, citing legal authority concerns and investor protection risks.
Summary
Bitwise and the Hyperliquid Policy Center have urged the U.S. Securities and Exchange Commission to clarify rules governing token classification, airdrops and secondary market trading, according to Cointelegraph, which reported on Oct. 20. The two groups submitted separate comment letters ahead of the SEC's deadline for public input on its proposed "crypto asset regulation." The proposal sets exceptions for cryptocurrency fundraising that meet certain requirements and provides a conditional safe harbor for tokens linked to investment contracts. The SEC will decide whether to revise, adopt or withdraw the rule after the public comment period closed on Oct. 20. Even if a final rule is prepared, it would require a commission vote before taking effect.
Bitwise asked the SEC to establish clear standards allowing asset managers to determine whether securities laws apply to individual cryptocurrencies based only on publicly available information. It argued the regulation should specify the extent to which market participants can rely on a TR form filed by an issuer confirming the termination of an investment contract, as well as the criteria for evaluating tokens lacking such a filing.
The Hyperliquid Policy Center urged an expansion of the safe harbor's scope, noting that the current draft applies only after a project's development is complete. It also requested clarity on the protection afforded to airdrops paid as rewards for network participation and guidance on token buybacks. On trading, the group said the draft does not make clear whether token intermediation by unregistered brokers or free trading through on-chain protocols would be allowed, and asked that the rule specify secondary market trading standards to resolve uncertainty for exchanges and decentralised exchanges (DEX).
The calls for clarification contrast with a comment letter submitted on Oct. 16 by former SEC enforcement official John Reed Stark and Duke University finance professor Lee Reiners, who argued the proposal should be withdrawn in full. They said the rule could exceed the SEC's legal authority and weaken investor protection, noting that a framework for regulating cryptocurrency issuance already exists under current securities laws and U.S. Supreme Court lower-court rulings. They warned that fundraising exceptions could weaken investor protection, that a conditional safe harbor could let issuers move tokens outside securities regulation based only on self-certification, and that adopting the rule in its current form could trigger immediate legal disputes.
The SEC will now weigh these conflicting industry and legal submissions. The central questions are how far the agency should go in defining the legal nature of tokens, and how airdrops and on-chain secondary trading should fit within the institutional framework.
Bitwise asked the SEC to establish clear standards allowing asset managers to determine whether securities laws apply to individual cryptocurrencies based only on publicly available information. It argued the regulation should specify the extent to which market participants can rely on a TR form filed by an issuer confirming the termination of an investment contract, as well as the criteria for evaluating tokens lacking such a filing.
The Hyperliquid Policy Center urged an expansion of the safe harbor's scope, noting that the current draft applies only after a project's development is complete. It also requested clarity on the protection afforded to airdrops paid as rewards for network participation and guidance on token buybacks. On trading, the group said the draft does not make clear whether token intermediation by unregistered brokers or free trading through on-chain protocols would be allowed, and asked that the rule specify secondary market trading standards to resolve uncertainty for exchanges and decentralised exchanges (DEX).
The calls for clarification contrast with a comment letter submitted on Oct. 16 by former SEC enforcement official John Reed Stark and Duke University finance professor Lee Reiners, who argued the proposal should be withdrawn in full. They said the rule could exceed the SEC's legal authority and weaken investor protection, noting that a framework for regulating cryptocurrency issuance already exists under current securities laws and U.S. Supreme Court lower-court rulings. They warned that fundraising exceptions could weaken investor protection, that a conditional safe harbor could let issuers move tokens outside securities regulation based only on self-certification, and that adopting the rule in its current form could trigger immediate legal disputes.
The SEC will now weigh these conflicting industry and legal submissions. The central questions are how far the agency should go in defining the legal nature of tokens, and how airdrops and on-chain secondary trading should fit within the institutional framework.
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