How the new US crypto bill could finally define commodities and securities

Senate bill targets crypto’s regulatory paradox: Security vs. commodity

Since its inception, the US cryptocurrency industry has faced a regulatory challenge: determining when a digital asset qualifies as a security and when it qualifies as a commodity.

This uncertainty has hindered institutional adoption, fueled legal disputes and made it difficult for crypto companies to interpret complex rules. But a draft bill from the Senate Agriculture Committee, led by Chair John Boozman and Senator Cory Booker, proposes changes that may address this.

The bill is part of a broader effort to establish a unified framework for digital asset markets. The bipartisan discussion draft outlines how the US could classify crypto assets and assign oversight responsibilities. It marks a significant step toward settling the long-running debate over whether crypto assets are commodities or securities.

Crypto projects in the US have long been unsure whether they need to register with the Securities and Exchange Commission. Trading platforms have struggled to determine what tokens require securities licenses. Institutional investors have held back because compliance expectations are unclear. And regular crypto traders have faced a fragmented market with inconsistent protections.

The proposal aims to establish a clear federal distinction between digital commodities and digital securities.

Did you know? In 2019, when Facebook announced its Libra project (later renamed Diem), global regulators reacted quickly. G7 ministers, central banks and the US Congress raised concerns that a private company could create a global currency. The backlash became a turning point for stablecoin regulation worldwide. The project was eventually shut down in January 2022.

What is a digital commodity?

The draft bill introduces a major new concept: the digital commodity. Under this plan, coins such as Bitcoin (BTC) and Ether (ETH) would be classified as digital commodities.

A digital commodity is essentially an interchangeable token. You can fully own it and transfer it directly to someone else without an intermediary. It is recorded on a public, cryptographically secured blockchain. Under the bill, these digital commodities would fall under the Commodity Futures Trading Commission (CFTC) rather than the SEC.

Here’s how the concept of a digital commodity could change the scenario:

• Clear rules for big investors: If certain coins are officially labeled digital commodities, banks, funds and trustees could hold them without risking federal violations.

• Less uncertainty: Companies would no longer have to worry about the SEC unexpectedly declaring their token a security.

• Two different markets: Digital commodities deemed “safe” would likely see higher trading volume, more derivatives activity and increased institutional participation. Tokens that do not qualify would remain under SEC oversight.

Did you know? Long before crypto went mainstream, the US classified Bitcoin as “property” for tax purposes in 2014. This means every crypto trade could trigger a capital gains event. Ironically, it became one of the earliest forms of crypto regulation worldwide, predating major adoption.

Categorization of coins and a shift in regulatory power

The bill clarifies what qualifies as a commodity, but it does not fully define what qualifies as a security. The classification of decentralized finance (DeFi) projects, governance tokens and hybrid tokens would be determined later.

If a token does not fit the “digital commodity” category, exchanges, issuers and wallet providers can expect it to fall under SEC review.

Broadly, the bill outlines three regulatory lanes:

• Clear rules for commodities, including major assets such as Bitcoin and Ether

• Stricter, security-style oversight for many utility tokens, governance tokens and tokenized assets

• Tough requirements for new token issuances, including disclosures and compliance checks.

A token’s design determines how it will be regulated. Three key factors matter: how decentralized it is, what purpose it serves and how it is sold. These elements decide whether it falls under the more flexible CFTC or the stricter SEC.

A key change in the draft bill is the proposed shift in regulatory power. Historically, the SEC has held primary authority over crypto. But the new proposal significantly expands the CFTC’s role, giving it oversight of:

• The direct trading market for digital commodities

• Registration and supervision of exchanges, brokers and custodians that handle these assets

• New rulemaking authority — in some cases shared with the SEC

• The ability to collect fees to fund its expanded digital asset oversight duties.

This marks a major shift away from the SEC’s reliance on enforcement actions. The new framework favors a structured, predictable regulatory system, meaning the crypto industry could face fewer surprise legal actions and benefit from clearer, more consistent rules.

Stricter operational standards for crypto firms

Beyond classification, the draft bill sets operational and risk-management requirements intended to address vulnerabilities in the cryptocurrency sector.

1. Segregating funds and avoiding conflicts of interest: Crypto exchanges would be barred from combining trading, custody, brokerage and market-making functions within a single entity. Instead, they would need to separate these roles, similar to the structure used in traditional finance.

2. Listing only assets not “readily susceptible to manipulation”: Exchanges would be allowed to list only digital commodities that meet specific integrity standards. This could significantly reduce the number of unreliable tokens on US platforms.

3. Strengthening consumer protections: The draft proposes:

• Safeguarding customer assets

• Clear and complete disclosures

• Transparent audit records

• Mandatory reporting and compliance obligations.

If enacted, these measures would help reduce fraud, sudden project failures and exchange insolvencies.

Did you know? The EU’s Markets in Crypto-Assets (MiCA) framework, passed in 2023, became the world’s first major crypto rulebook. It sparked a surge in crypto businesses moving to Europe in search of regulatory clarity.

What the draft means for different crypto stakeholders

The proposed bill to clarify crypto regulation represents a pivotal moment. From established exchanges and institutional investors to retail traders and federal agencies, the framework would affect every major stakeholder in the digital asset ecosystem.

For token issuers

Projects would need to assess whether their tokens qualify as digital commodities. The more decentralized a network is and the fewer intermediaries it relies on, the stronger the case for commodity status.

Tokens that do not meet the criteria would remain under SEC oversight and face potentially stricter requirements.

For exchanges and brokers

Firms would need to:

• Separate operational divisions

• Register with the CFTC

• Adopt more comprehensive compliance systems.

Although these changes could raise costs, they are expected to improve institutional confidence and support a more mature market structure.

For institutional investors

Institutional investors stand to benefit the most.

Large asset managers have long cited the lack of clear federal rules as the biggest obstacle to adding crypto to portfolios. With defined classifications and federal oversight, fiduciaries may be more willing to pursue large-scale adoption.

For retail users

Retail users could see fewer fraudulent schemes, higher operational standards and greater trust in regulated assets. However, the range of unconventional tokens available for trading may shrink.