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Securities or Commodities? Why the New Bill Forces a Fresh Look at How Crypto is Classified

UUnknown

2026-02-16

11 min read

A 2026 legal opinion on the new crypto bill: how jurisdictional language reshapes securities vs commodities classification and what to do now.

Why this matters now: a legal wake-up call for issuers, exchanges and investors

Crypto markets move in minutes; regulation moves in years. That mismatch is a constant source of risk for investors, founders and trading venues. The draft Senate bill unveiled in mid-January 2026 forces a fresh legal question into the center of that risk: does a token qualify as a security under the centuries-old Howey test, as a commodity under the Commodity Exchange Act, or as a new statutory species with its own rules? The bill’s jurisdictional language — specifically assigning spot-market authority to the CFTC while proposing statutory definitions for token types — creates both opportunity and litigation risk. This opinion examines the core legal issues and draws practical steps market participants must take now.

Top-line takeaway

The draft bill appears designed to deliver regulatory clarity by: (1) carving out express roles for the SEC and CFTC, (2) proposing objective markers for asset classification, and (3) closing perceived gaps from the 2025 stablecoin law. But clarity on paper does not equal clarity in court. Any statutory redefinition of securities or commodities will test bedrock judicial doctrines — notably the Howey test — and invite multiyear litigation as agencies, industry and private litigants establish enforcement boundaries. Issuers, exchanges and investors must therefore treat this as a transitional regime: plan for regulatory arbitrage today and for litigation-driven precedent tomorrow.

How the bill changes the playing field

The draft legislation circulated in January 2026 makes several consequential moves. Three are most important to classification and jurisdiction:

Statutory definitions of token classes. The bill attempts an objective taxonomy to identify when a digital asset is a security, a commodity, or "other" (e.g., a payment token or utility token), based on design and function rather than purely on economic facts. See also work on automating compliance checks as teams try to codify markers and evidentiary packages.
Spot-market authority to the CFTC. The draft grants the CFTC explicit supervision over spot trading of certain crypto assets, an important industry preference and a shift from the SEC-centric enforcement seen in much of the 2020s.
Stablecoin adjustments and banking guardrails. Building on 2025 stablecoin legislation, the bill adds prescriptions preventing on-ramps that would allow interest payments on bank-like stablecoin constructs without banking supervision.

Why jurisdictional language matters more than labels

Regulators and courts do not just read words — they interpret incentives. A provision that reads "spot markets for covered assets fall under the CFTC" does two things: it signals Congress’s intent to allocate market oversight to an agency with deep derivatives and surveillance experience, and it shifts private enforcement incentives. Market actors will prefer the CFTC for reasons of consistency with futures-market plumbing, lower civil-liability precedents for 'investment contract' claims, and operational models developed in the derivatives space. But labeling alone will not prevent litigants from invoking the Howey test in private suits or in SEC enforcement actions if the SEC asserts authority under existing securities laws.

Statutory redefinition is not an immediate panacea — it is the start of a new era of litigation over the reach and meaning of those statutory terms.

The central legal conflict: Howey test versus statutory definitions

The Howey test — the Supreme Court’s benchmark for determining whether an instrument is an "investment contract" — asks whether there is (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) derived from the efforts of others. Because Howey is a facts-and-circumstances test, courts have used it to find some tokens to be securities and others not. The draft bill’s attempt to codify what qualifies as a security could either clarify or complicate that analysis.

Two possible statutory approaches — and their legal consequences

Descriptive statutes that supplement Howey. If the bill adopts industry-friendly bright-line markers but explicitly states that the Howey test still controls, courts will likely treat the statute as interpretive guidance. That reduces immediate litigation risk but leaves open thorny factual inquiries in enforcement cases.
Substantive statutory redefinition of "security." If Congress replaces or substantially narrows Howey with statutory definitions, it invites constitutional and statutory challenges. Courts may be asked to reconcile Congressional intent with Supreme Court precedent — a process that could take years and produce a patchwork of decisions.

Both approaches reshape the incentives for issuers and exchanges. The first buys time and predictability; the second promises faster clarity but higher litigation risk.

Practical implications for market actors

Below, I outline pragmatic steps for issuers, exchanges and investors as they navigate the new bill’s jurisdictional language and the unsettled follow-on enforcement environment.

Issuers: design defensibly and document everything

Issuers should assume that classification questions will be litigated and that both agencies (and private plaintiffs) will seek answers. Actionable measures:

Reassess token economics. Remove structural hallmarks of "investment contracts" where possible: minimize promises or expectations of profit tied to issuer efforts; design governance to distribute control and reduce a single point of managerial influence.
Document decentralization milestones. Prepare contemporaneous evidence of progress towards decentralization (e.g., transfer of control over protocol upgrades, distribution of validator/operator roles) with clear timelines and custody arrangements — maintain audit trails that prove human sign-off and governance handoffs.
Update disclosure regimes. Whether the token is likely to be a security or commodity, investors expect transparency. Build a disclosure pack that maps token purpose, governance, distribution, reserve audits (for stablecoins), and risk factors aligned to both securities and commodities frameworks. Use robust storage and retention — for example, best practices from recent distributed file systems reviews — to preserve evidentiary packages.
Legal contingency planning. Prepare parallel compliance tracks. If an asset could be treated as a security under Howey, prepare for disclosure/registration or a Reg D/Reg S pathway where appropriate. If commodity treatment is likely, assess registration with the CFTC, including intermediary models and clearing requirements. Automate checklisting where possible with modern tools for legal and compliance automation.
Insurance and custody. Secure third-party custody and insurance where possible; regulators and courts favor arrangements that limit the issuer’s ongoing control over customer funds. Consider threat modeling akin to messaging and identity risk work (see phone-number takeover defenses) when designing account-recovery and admin access.

Exchanges and trading venues: dual readiness is the new baseline

The bill’s grant of spot-market authority to the CFTC is a welcome development for some venues, but it does not absolve platforms from preparing for cross-agency oversight and state-by-state enforcement. Operational steps:

Map asset classes now. Build an internal taxonomy that maps each traded token to likely treatment under the draft bill and under existing Howey jurisprudence. Identify assets that are high-risk for SEC scrutiny and annotate protocol components (oracles, tokenomics) — tools like the Oracles.Cloud CLI reviews can inform operational audits.
Registration and chartering contingency. Prepare parallel registration plans: (a) CFTC registration options (as a designated contract market, swap execution facility, FCM or derivatives clearing organization) and (b) SEC-related registrations (broker-dealer, ATS) for assets that remain arguably securities.
Surveillance and market manipulation programs. The CFTC favors robust surveillance commensurate with derivatives markets. Expect rulemaking requiring surveillance, best execution, and trade reporting for spot markets tied to commodity assets. Plan for advanced tooling and resilient architectures — practices from edge AI reliability work are increasingly relevant for low-latency monitoring.
Custody segregation and customer protections. Revisit custody models to ensure segregated customer accounts and stronger bankruptcy protection where required by securities laws or CFTC paradigms.
Lobbying and rulemaking engagement. Work with trade groups and regulators during notice-and-comment windows; the technical shape of rules will likely be as decisive as statutory text. Harmonize your submissions with data and storage practices informed by edge datastore strategies.

Investors: assume changing protections and manage exposure

Investor protections vary dramatically depending on whether an asset is a security or a commodity. For retail and institutional investors, practical steps include:

Re-evaluate custody and counterparty risk. If more assets migrate under CFTC spot oversight, examine whether your custodian is FCM-compliant or holds protections you expect from SEC-regulated custodians.
Assess litigation and enforcement risk premiums. Securities-classification risk may increase volatility and reduce liquidity as issuers redesign tokens. Price positions accordingly and consider yield strategy interplay with broader markets (private credit vs public bonds) when rebalancing.
Tax and reporting vigilance. Regulatory classification affects tax characterization and reporting obligations; consult tax counsel to update reporting strategies for 2026 filings.
Consider portfolio guardrails. Limit allocation to newly uncertain tokens; favor assets with clear on-chain use cases or that have undergone robust legal review and third-party attestations.

Three flashpoints to watch in the coming 18–36 months

Expect a period of intense activity as agencies and courts interpret the bill. Watch these battlegrounds closely.

Preemption and judicial review. If Congress narrows the statutory meaning of "security," the SEC may challenge the redefinition. Courts will be asked to reconcile statutory text with Howey precedent. Outcomes here will determine whether the bill achieves durable clarity.
Private plaintiff use of the Howey framework. Even if the bill favors CFTC oversight, private securities class actions may still invoke Howey against issuers and platforms — generating damages exposure independent of agency enforcement.
Stablecoin design and bank interaction. The bill’s anti-interest guardrails for bank-like stablecoins may push certain products offshore or spur bank-led consortia to propose compliant architectures; keep an eye on chartering and state licensing workarounds.

How to prioritize resources today: a practical checklist

Below is an actionable roadmap to align legal, compliance and product teams with the new landscape.

Immediate (0–3 months)
- Conduct a token-by-token legal classification audit tied to both the draft bill’s taxonomy and existing Howey factors.
- Create documentation packages evidencing decentralization, tokenomics and reserve backing.
- Brief senior leadership and investors on the litigation and timing risks; use rapid-issue briefings and external crypto compliance updates to keep stakeholders informed.
Short term (3–9 months)
- File for dual-track registration readiness where appropriate (SEC and CFTC pathways).
- Upgrade market surveillance and reporting mechanisms to match derivatives-market standards.
- Secure custody and insurance arrangements that satisfy both securities and commodities expectations; threat-model access and recovery plans with an eye to identity risks like phone-number takeover.
Medium term (9–24 months)
- Engage in rulemaking comments and industry working groups; seek interpretive letters where beneficial.
- Implement product redesigns for tokens that are borderline securities to reduce issuer control or profit expectations.
- Prepare for potential litigation funding and discovery demands; collect and preserve contemporaneous records using robust distributed and edge storage reviewed in recent distributed file systems work.

Anticipated market and policy effects in 2026

Assuming Congress passes a bill resembling the January 2026 draft, expect these trends through the rest of 2026 and into 2027:

Onshore liquidity returns selectively. Assets clearly classified as commodities or payment tokens will regain institutional liquidity as CFTC oversight reduces some counterparty risk uncertainty. Pay attention to macro signals discussed in investor briefs such as which indicators matter.
DeFi continues to face legal scrutiny. Protocol-native governance and yield-bearing mechanisms will be focal points for SEC-style claims under Howey and for CFTC rules if the products resemble derivatives or fundamental commodities markets.
Regulatory arbitrage intensifies. Expect innovation at the margins — jurisdiction shopping, cross-border licensing, and hybrid token designs that try to square statutory boxes.
Enforcement convergence. The SEC and CFTC will likely coordinate on high-stakes matters but compete for jurisdiction — a dynamic that creates unpredictability for defendants.

Final legal assessment

The draft bill is a consequential and overdue attempt to create a more orderly framework for digital assets. But statutory clarity is not instantaneous legal certainty. The bill’s jurisdictional language will change incentives and administrative practice, likely accelerating migration of certain spot markets into the CFTC’s orbit. Yet the enduring tool of private litigation — often rooted in the Howey test — ensures that asset classification will remain contested in courts for years.

For issuers, exchanges and investors the correct posture is not passive optimism. Treat the bill as a catalyst for disciplined governance, documentation and dual-path compliance. Those who prepare for both regulatory outcomes stand the best chance of surviving the transition with reduced enforcement risk and faster access to onshore liquidity.

Actionable next steps

Commission an immediate legal classification audit for all tokens and trading pairs.
Implement or update decentralization milestones and preserve contemporaneous evidence.
Build dual-track registration and operational playbooks for SEC and CFTC pathways.
Accelerate custody and insurance arrangements to meet higher standards expected by both agencies.
Engage with trade groups and regulators during the notice-and-comment and drafting stages.

Call to action

This is a decisive moment. If you are an issuer, exchange operator, or investor with material crypto exposure, do not assume the dust will settle quickly. Start the classification audit today, update governance and disclosure, and consult experienced securities and commodities counsel to build a compliance roadmap that can survive both the regulatory transitions of 2026 and the inevitable courtroom tests that will follow.

Want a tailored compliance checklist or a token-by-token classification memo? Contact specialized legal counsel and subscribe to our policy briefings for real-time analysis as Congress, the SEC and the CFTC move to implement — and litigate — the new framework. Also consider tools and operational practices from vendors and reviews covering compliance automation, audit trails, and distributed storage to preserve records.

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