The Previous Administration’s Approach: Enforcement and the Howey Test

Under Gary Gensler’s leadership from April 2021 to January 20, 2025, the SEC adopted a robust enforcement-driven strategy to regulate cryptocurrencies[1], aiming to protect investors from the risks and volatility of the digital asset market. Gensler’s SEC pursued numerous enforcement actions for alleged violations of securities laws, aiming to bring clarity through legal precedent.

The Terraform Labs Case: A Legal Milestone

One of the most prominent examples[2] of this approach was SEC v. Terraform Labs Pte. Ltd.[3], a landmark case that underscored the SEC’s authority over digital assets. Terraform Labs, founded in 2018[4], developed the algorithmic stablecoin[5] TerraUSD (UST) and governance token LUNA, which promised high returns through its Anchor Protocol[6]. In May 2022, UST lost its dollar peg[7], triggering a collapse that erased approximately $40 billion in market value. The rout was so severe that former U.S. Treasury Secretary Janet Yellen weighed in[8], calling for more federal regulation on stablecoins.

Thereafter, the SEC tried its first-ever crypto-related trial in SEC v. Terraform, where it charged Terraform and its founder, Do Kwon, with orchestrating a multi-billion-dollar crypto asset securities fraud from April 2018 until the scheme’s collapse in May 2022. Applying the Howey Test[9], the SEC argued that LUNA and UST constituted investment contracts because investors purchased these tokens expecting profits from Terraform’s management and technological efforts. Following a nine-day trial, a jury found Terraform and Kwon liable, resulting in over $4.5 billion[10] in disgorgement, prejudgment interest, and civil penalties – the SEC’s largest trial-related remedies.

Interestingly, Terraform Labs, now in Chapter 11 bankruptcy[11], still appears as a marquee sponsor at the Nationals Park in D.C. Because the club’s five-year, fully prepaid sponsorship deal was signed in February 2022 and runs through 2026[12], fans will continue to see “Terra” signage at Nationals Park, despite the company’s collapse.

Other Enforcement Actions

Beyond Terraform, the SEC pursued a broad range of crypto-related enforcement actions[13] under Gensler, targeting, among other market participants, exchanges for listing unregistered securities and issuers for misleading marketing and failure to register tokens as securities. Between April 2021 and December 2024[14], the SEC initiated 125 cryptocurrency-related enforcement actions, resolving 98 with $6.05 billion in penalties, nearly four times the amount under the prior administration. Aggrieved and urging legislative clarity, the crypto industry contended that the Howey Test, rooted in a 1946 citrus grove investment scheme, was ill-equipped to address blockchain’s decentralized structures[15].

The New Administration’s Approach: Innovation and Regulatory Clarity?

The inauguration of President Donald Trump on January 20, 2025, marked a pivotal shift in U.S. cryptocurrency policy. Recognizing the economic potential of digital assets, the Trump administration has prioritized innovation, as evidenced by the executive order on “Strengthening American Leadership in Digital Financial Technology,”[16] signed on January 23, 2025.

The Executive Order: Legal and Policy Framework

The executive order outlines several key initiatives[17] to support the crypto industry while maintaining oversight:

• Prohibition on Central Bank Digital Currencies (CBDCs): Citing risks to financial stability, privacy, and private-sector innovation, the order prohibits CBDCs in the U.S., emphasizing dollar-backed stablecoins to maintain monetary sovereignty.
• Presidential Working Group on Digital Asset Markets (Working Group): Chaired by David Sacks, Special Advisor for AI and Crypto, the Working Group is tasked with proposing a federal regulatory framework for digital assets, including stablecoins, within 180 days (by July 21, 2025).
• National Digital Asset Stockpile: Call for the creation of a stockpile of seized cryptocurrencies to enhance U.S. competitiveness in global finance.
• Access to Blockchain and Banking Services: Aims to ensure that individuals and entities can access open blockchain networks and banking services without undue restrictions.

With more than half of the 180-day timeline elapsed, certain related actions appear to align with the order’s objectives, including:

• On January 23, 2025[18], the SEC rescinded Staff Accounting Bulletin 121 (SAB 121), which had required companies holding crypto assets to record them as liabilities, discouraging banks from offering custody services. This move is expected[19] to increase institutional participation in the crypto market.

• On February 21, 2025[20], SEC Commissioner Hester Peirce issued a statement proposing a four-part framework to categorize crypto assets and solicited public input to clarify how securities laws should apply to digital assets, signaling an openness to regulatory reform.

• Under Acting Chair Mark Uyeda, the SEC dismissed several enforcement actions against crypto firms, including Coinbase[21], Kraken[22], and Ripple[23], indicating a less confrontational approach.
• To support the development of a coherent crypto regulatory framework, the SEC’s Crypto Task Force launched a series of public roundtables[24] engaging regulators, industry leaders, and academics.

These developments have relieved the crypto industry, with financial trade associations expressing support[25] for the Working Group’s goals and proposing recommendations to enhance bank engagement with digital assets.

Paul Atkins: A New Legal Vision for the SEC

The appointment of Paul Atkins as SEC Chair, confirmed by the Senate[26] on April 9, 2025, is central to the administration’s crypto agenda. A former SEC commissioner from 2002 to 2008, Atkins brings a pro-business perspective.

Atkins’ ties to the crypto industry, including his role as CEO of Patomak Global Partners and co-chair of the Digital Chamber’s Token Alliance, position him as a crypto advocate[27]. His financial disclosures revealed up to $6 million in crypto-related assets[28]. During his March 27, 2025, confirmation hearing[29], Atkins emphasized the need for clear regulations to reduce market uncertainty.

While Atkins did not explicitly address the Howey Test during his hearing, his broader comments suggest a potential shift in its application. He has advocated for a “rational, coherent, and principled” approach, which may involve recognizing the decentralized nature of many cryptocurrencies and limiting the scope of securities classification. However, critics, including Senator Elizabeth Warren[30], warn that Atkins’ industry ties could lead to reduced oversight, increasing investor risks.

The Legal Status of Cryptocurrencies: Evolution and Current Thinking

The legal status of cryptocurrencies has been a contentious issue, shaped by the SEC’s application of securities laws and evolving judicial interpretations.

The Howey Test and Its Application

The Howey Test has been the cornerstone of the SEC’s crypto regulation strategy. In cases like SEC v. Ripple Labs[31]and SEC v. Terraform Labs[32], courts upheld the SEC’s position that certain tokens met the Howey criteria, reinforcing its authority. However, the test’s third prong – an expectation of profits from others’ efforts – has sparked debate in the context of decentralized networks, where token holders may not rely on a central entity.

Under Gensler, the SEC’s broad interpretation of the Howey Test led to a surge in enforcement actions[33], with 583 total actions in fiscal year 2024, securing $8.2 billion in remedies. Approximately 56% of such ordered $8.2 billion financial remedies[34] are attributable to the Terraform Judgment. This approach aimed to protect investors but faced resistance from the crypto industry, which sought legislative clarity.

Current Administration’s Legal Thinking

The Trump administration’s approach, as articulated in the executive order and Atkins’ statements, reflects a shift toward viewing cryptocurrencies as a driver of economic innovation rather than solely a regulatory challenge. Atkins’ leadership will likely influence the SEC’s legal stance on cryptocurrencies. While the Howey Test will likely remain a key tool, Atkins may advocate for guidance distinguishing between centralized and decentralized tokens, potentially reducing the number of cryptocurrencies classified as securities.

Current State of SEC Enforcement and Regulation

SEC Examination Priorities and Recent Enforcement Trends

The SEC has designated cryptocurrencies as a key examination priority for 2025[35], focusing on registrants offering crypto-related services, such as spot Bitcoin and Ether exchange-traded products. While enforcement remains part of the SEC’s strategy, its scope has narrowed. In February 2025, the SEC dismissed a civil enforcement action against Coinbase[36], citing the task force’s work to develop clearer policies. In March 2025, former Acting Chair Uyeda announced[37] that the SEC would not require crypto firms to register as alternative trading systems, reducing regulatory burdens.

The Crypto Task Force

A significant development is the establishment of the SEC’s Crypto Task Force[38], led by Commissioner Hester Peirce, on January 21, 2025. The task force aims to develop a comprehensive regulatory framework through public and industry engagement. It has organized a series of roundtables, including:

• March 21, 2025[39]: Discussed the application of securities laws to digital assets.
• April 11, 2025[40]: Focused on crypto trading platforms.
• April 25, 2025[41]: Addressed custody of crypto assets.
• May 12, 2025[42]: Will explore tokenization of real-world assets.
• June 9, 2025[43]: Will examine U.S. regulatory paths for decentralized finance.

Conclusion: A New Legal and Regulatory Chapter

The SEC’s transition from Gary Gensler to Paul Atkins marks a turning point in cryptocurrency regulation. The previous administration’s reliance on the Howey Test and enforcement actions aimed to protect investors, but often left the industry grappling with uncertainty. In contrast, the Trump administration appears to prioritize innovation while seeking to maintain investor safeguards.

The Working Group continues its work toward a federal regulatory framework. However, the legal status of cryptocurrencies remains fluid, with the Howey Test’s application under scrutiny and Atkins’ vision for tailored regulations still unfolding.

The Terraform collapse and other high-profile breakdowns in the crypto space expose deep market vulnerabilities; under Atkins, the SEC may pursue a regulatory balance that supports innovation while managing risk.

This article reflects developments up to May 7, 2025.

[1] https://www.sec.gov/newsroom/press-releases/2024-186

[2] https://www.sec.gov/newsroom/press-releases/2024-186

[3] https://www.sec.gov/newsroom/press-releases/2023-32

[4] https://cryptoslate.com/companies/terraform-labs/

[5] https://www.nytimes.com/explain/2022/cryptocurrency-guide#what-is-a-stablecoin

[6] https://www.theverge.com/2022/5/20/23131647/terra-luna-do-kwon-stablecoin-anchor

[7] https://www.sec.gov/files/terraform-labs-pte-ltd-amended-complaint.pdf

[8] https://www.bloomberg.com/news/articles/2022-05-10/yellen-cites-usd-breakdown-while-calling-for-stablecoin-rules

[9] https://supreme.justia.com/cases/federal/us/328/293/

[10] https://www.sec.gov/files/terraform-labs-pte-ltd-do-hyeong-kwon-final-judgment.pdf

[11] https://dm.epiq11.com/case/terraform/info?utm_source=chatgpt.com

[12] https://www.talknats.com/2024/02/06/time-flies-and-8-years-later-still-called-nationals-park/?utm_source=chatgpt.com

[13] https://www.sec.gov/files/2025-exam-priorities.pdf

[14] https://www.sec.gov/newsroom/press-releases/2024-186

[15] https://repository.law.uic.edu/cgi/viewcontent.cgi?article=1535&context=ripl

[16] https://www.federalregister.gov/documents/2025/01/31/2025-02123/strengthening-american-leadership-in-digital-financial-technology

[17] https://www.whitehouse.gov/fact-sheets/2025/01/fact-sheet-executive-order-to-establish-united-states-leadership-in-digital-financial-technology/

[18] https://www.sec.gov/rules-regulations/staff-guidance/staff-accounting-bulletins/staff-accounting-bulletin-122

[19] https://www.mondaq.com/unitedstates/fin-tech/1577200/sec-rescinds-sab-121-a-new-era-for-bitcoin-and-crypto-custody-in-banking

[20] https://www.sec.gov/newsroom/speeches-statements/peirce-statement-rfi-022125

[21] https://www.sec.gov/newsroom/press-releases/2025-47

[22] https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26278

[23] https://www.reuters.com/legal/ripple-ceo-says-us-sec-will-drop-appeal-against-crypto-firm-2025-03-19/

[24] https://www.sec.gov/newsroom/press-releases/2025-57

[25] https://www.theclearinghouse.org/payment-systems/Articles/2025/02/Working_Group_Digital_Asset_Markets_02-20-2025

[26] https://www.sec.gov/newsroom/speeches-statements/commissioners-welcome-atkins-040925

[27] https://www.ccn.com/education/crypto/paul-atkins-trumps-pro-crypto-sec-chairman-nominee/

[28] https://fortune.com/crypto/2025/03/25/paul-atkins-sec-nominee-securitize-anchorage-off-the-chain-capital-6-million-ethics-disclosure/

[29] https://www.banking.senate.gov/hearings/03/20/2025/nomination-hearing

[30] https://www.banking.senate.gov/newsroom/minority/ranking-member-warren-presses-sec-chair-nominee-paul-atkins-on-conflicts-of-interest-record-of-regulatory-failures-ahead-of-nomination-hearing

[31] https://www.nysd.uscourts.gov/sites/default/files/2023-07/SEC%20vs%20Ripple%207-13-23.pdf

[32] https://www.sec.gov/files/terraform-labs-pte-ltd-amended-complaint.pdf

[33] https://www.sec.gov/newsroom/press-releases/2024-186

[34] https://www.sec.gov/newsroom/speeches-statements/grewal-statement-040424

[35] https://www.sec.gov/newsroom/press-releases/2024-172

[36] https://www.sec.gov/newsroom/press-releases/2025-47

[37] https://www.reuters.com/technology/us-sec-move-away-requiring-crypto-firms-register-trading-systems-chief-says-2025-03-10/

[38] https://www.sec.gov/about/crypto-task-force

[39] https://www.reuters.com/world/us/us-sec-holds-crypto-task-force-roundtable-trump-plans-regulatory-revamp-2025-03-21/

[40] https://www.sec.gov/newsroom/meetings-events/between-block-hard-place-tailoring-regulation-crypto-trading

[41] https://www.sec.gov/newsroom/press-releases/2025-65

[42] https://www.sec.gov/newsroom/press-releases/2025-72

[43] https://www.sec.gov/newsroom/press-releases/2025-72