SEC’s Project Crypto Introduces Flexible Token Taxonomy
On November 13, 2025, SEC Chair Paul Atkins unveiled Project Crypto, a regulatory reform aimed at modernizing digital asset regulation. The initiative introduces a dynamic token taxonomy that applies the Howey test at different lifecycle stages. Under this framework, tokens may begin as securities during fundraising but can reclassify as commodities or utilities once they achieve sufficient decentralization and network functionality. Industry estimates indicate up to 60% of mature tokens could transition out of SEC jurisdiction. Project Crypto also enhances SEC-CFTC coordination, assigning commodities like Bitcoin (BTC) to the CFTC and investment contracts to the SEC. The proposal includes tailored exemptions and a sandbox for startups, with public comments and detailed guidance on reclassification criteria expected within six months. Additionally, it hints at future rules for algorithmic stablecoins and DeFi protocols, introducing reserve requirements and potential exemptions for truly decentralized platforms. By reducing regulatory uncertainty and maintaining targeted enforcement against fraud, Project Crypto seeks to foster innovation while protecting investors.
Bullish
Project Crypto significantly reduces regulatory ambiguity by establishing clear classification rules and interagency boundaries. Historical precedents, such as the SEC approval of Bitcoin ETFs in 2024, triggered positive market responses through renewed investor confidence and increased trading volumes. In the short term, crypto assets—particularly BTC and leading altcoins—are likely to appreciate on expectations of streamlined compliance and reduced legal risks. Over the long term, an adaptive regulatory framework encourages innovation, attracts institutional capital, and supports sustainable growth, reinforcing a bullish outlook for the broader cryptocurrency market.