U.S. Congress Races to Finalize Crypto Law Before August Recess

• Congress prepares draft crypto bill by August as rifts grow over applying Howey Test to digital assets
• Coinbase, a16z, and SEC leaders push opposing frameworks for U.S. crypto regulation under new bill
• Decentralization, investment contracts, and ancillary asset models fuel market structure dispute

Divisions within the digital asset industry are creating uncertainty as the U.S. Congress aims to introduce a crypto market structure bill before its August recess.

Despite months of industry proposals to policymakers, a lack of consensus on key regulatory frameworks now threatens to complicate the legislative process.

Howey Test Applicability Remains Central Point of Debate

A core disagreement centers on the applicability of the Howey Test—a legal standard from 1946 used to define securities—to digital assets. The Securities and Exchange Commission (SEC) has frequently used the Howey Test in enforcement actions against crypto firms, drawing criticism from many in the industry who argue it’s an outdated or inappropriate standard for this asset class.

Related: Is the Howey Test Still Relevant? Ripple’s Alderoty Questions SEC’s Approach

Four main legal approaches have surfaced. One perspective favors retaining the Howey Test for case-by-case assessments, supported by current SEC Commissioner Caroline Crenshaw and former SEC Internet Enforcement Chief John Reed Stark. Conversely, figures like newly appointed SEC Chairman Paul Atkins and several Republican lawmakers have criticized the existing framework, pushing for significant regulatory updates and a more innovation-friendly approach.

Alternative Frameworks: Investment Contracts, Ancillary Assets Proposed

Gaining traction among some crypto lawyers is the argument that digital asset transactions should only qualify as securities if explicitly tied to a written investment contract. This view often references arguments made during the Ripple legal case beginning in 2020, even though Ripple’s specific contract-based defense wasn’t fully adopted by the court.

Another proposal, advocated by lawyers like Lewis Cohen of Cahill Gordon & Reindel, suggests a split approach using the “ancillary asset” framework. This model, sometimes leveraging existing legislative proposals like the Responsible Financial Innovation Act (RFIA), would treat initial token sales like securities offerings but potentially exempt subsequent secondary market trading from certain securities laws.

Decentralization Test Pushed by Major Industry Players

A final viewpoint, backed by major players like a16z Crypto, Coinbase, and Optimism, argues that transactions occurring on sufficiently decentralized networks should be entirely excluded from securities regulations. 

This approach draws heavily on a 2018 speech by former SEC Director William Hinman regarding Ethereum’s status (often called the “Hinman Test” standard) and has been supported by Commissioner Hester Peirce. Proponents advocate for a formal “decentralization test” to distinguish public blockchain infrastructure from centrally managed token offerings.

Related: US Congress Targets Crypto Bill by 2025: Pro-Crypto Senator Cynthia Lummis Drives Senate Agenda

The House Financial Services Committee and the House Agriculture Committee are anticipated to release a draft market structure bill—potentially resembling last year’s FIT21 Act—imminently, ahead of a planned joint hearing on May 6th. 

Following its release, regulatory bodies like the SEC and CFTC would likely begin formal rulemaking procedures. Legal experts and industry groups across the crypto sector are already preparing extensive feedback through comment letters and public testimony.