Crypto and Securities Fraud: When Do Digital Assets Qualify as Securities?

Quick answer: There's no blanket rule that crypto is or isn't a security. Courts and regulators apply the decades-old Howey test on a case-by-case basis, asking whether a digital asset was sold as part of an investment contract. The SEC's March 2026 interpretive guidance organized crypto into five categories, but the underlying legal analysis has not changed.

What Is the Howey Test and Does It Still Apply to Crypto?

Under the U.S. Supreme Court's 1946 decision in SEC v. W.J. Howey Co., an arrangement is an investment contract and therefore a security if it involves (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) derived primarily from the efforts of others. All four elements must be satisfied. When they are, the instrument is a security subject to federal registration requirements and antifraud rules, regardless of what it is called.

How Did the SEC's 2026 Guidance Change Crypto Classification?

On March 17, 2026, the SEC issued a formal interpretive release, joined by the CFTC, providing the most detailed guidance to date on how Howey applies to digital assets. The release sorts crypto assets into five broad categories:

Digital commodities
Digital collectibles
Digital tools
Stablecoins
Digital securities

Which Crypto Assets Are Securities? The SEC's Five Categories at a Glance

Category	Generally a Security?	Can Still Be Sold as an Investment Contract?	Typical Examples
Digital commodities	No	Yes if sold with promises of profit from the issuer's efforts	Tokens on decentralized networks with no central managing team
Digital collectibles	No	Yes if marketed as an investment rather than a collectible	NFTs tied to art, music, or memorabilia
Digital tools	No	Yes if purchasers were promised returns beyond the token's utility	Tokens used to access a network function or service
Stablecoins	No	Yes if structured or promoted to generate profit for holders	Tokens pegged to the U.S. dollar or another reference asset
Digital securities	Yes	N/A — already securities under federal law	Tokenized stocks, bonds, or profit-sharing interests

According to the SEC, the first four categories generally are not securities in themselves, because they typically lack the economic characteristics of a security. However, the SEC was clear that classification depends on how an asset was actually sold — not just its technical design. A token that is nominally a "digital commodity" can still be an investment contract if it was sold with promises of profit based on the issuer's ongoing efforts.

It's worth noting that this guidance is an interpretive release, not a binding rule adopted through formal rulemaking. That means it carries meaningful weight but can be revised, narrowed, or withdrawn. Courts are not required to follow it, though they often give agency guidance significant deference.

Can Investors Sue for Crypto Losses?

For investors, the practical question is rarely "is crypto, in general, a security?" It's "was this specific offering sold to me as an investment contract, based on promises made by the issuer or promoter?" Courts look at evidence such as:

Whitepapers, marketing materials, or social media statements promising returns based on the team's ongoing efforts
Whether purchasers were told profits would come from the managerial work of a founding team or company, rather than the purchaser's own use of the asset
How specific and concrete the issuer's promises were (vague, aspirational language is treated differently than detailed commitments with milestones and timelines)

If a digital asset was sold as an investment contract and the issuer made false or misleading statements about the project, the technology, its finances, or its prospects, investors who relied on those statements may have a securities fraud claim. Depending on the facts, investors may also be able to pursue a securities class action if the losses were widespread.

Why Do Crypto Securities Cases Keep Changing?

This is one of the more actively shifting corners of securities law right now, with new SEC and CFTC guidance, pending federal legislation on digital asset market structure, and ongoing court decisions that sometimes reach conflicting conclusions. Whether a token is a security is often a fact-intensive question, and the answer can change depending on how the asset was marketed at the time of purchase — not just what it looks like today.

Frequently Asked Questions About Crypto and Securities Law

Is Bitcoin a security?

Bitcoin is generally treated as a digital commodity, not a security, because it has no central issuer or managing team whose efforts drive its value. However, investment products built around Bitcoin — such as leveraged funds or structured notes — may themselves be securities, even if Bitcoin is not.

What is the Howey test?

The Howey test comes from a 1946 U.S. Supreme Court decision and defines an investment contract under federal securities law. An arrangement is a security if it involves an investment of money, in a common enterprise, with an expectation of profits, derived primarily from the efforts of others. All four elements must be satisfied.

Can I sue if I lost money on a crypto investment?

Possibly. If the asset was sold as an investment contract and the issuer or promoter made false or misleading statements about the project, its technology, or its finances, investors who relied on those statements and suffered losses may have a claim. Whether those losses may support a claim depends on the specific facts of your situation.

Are stablecoins securities?

Under the SEC's 2026 guidance, stablecoins generally are not securities in themselves, because they are designed to hold a stable value rather than generate profit. But a stablecoin arrangement structured or promoted to deliver returns to holders — through interest, yield mechanisms, or similar features — could still be sold as an investment contract under the Howey test.

Does the SEC still regulate crypto after the 2026 guidance?

Yes. The March 2026 interpretive release clarified how the SEC classifies crypto assets, but it did not remove them from the agency's reach. Tokens sold as investment contracts remain subject to the federal securities laws, including the antifraud provisions that allow investors to bring claims.

What is the difference between a digital commodity and a digital security?

A digital commodity derives its value from a decentralized network rather than a central team's efforts, so it generally is not a security. A digital security represents a traditional financial interest — such as a tokenized stock or bond — and is always subject to federal securities regulation. Between those categories are tokens whose classification depends on how they were sold.

How BG&G Can Help

Bronstein, Gewirtz & Grossman, LLC investigates and litigates securities fraud claims involving both traditional securities and digital assets. If you believe you were misled in connection with a crypto investment, our attorneys can evaluate whether your losses may support a claim. Contact us for a free, confidential consultation.