Main Points:
- Shift in Regulatory Philosophy: The SEC under Chair Paul Atkins will prioritize formal rulemaking through notice-and-comment rather than enforcement-first actions.
- Notice-and-Comment Process: New rules will be published in the Federal Register, open a 30–60-day public comment period, and require the SEC to address feedback before finalizing regulations.
- Contrast with Previous Leadership: The approach diverges sharply from Gary Gensler’s tenure, which relied heavily on enforcement actions against crypto firms.
- Objective of the Shift: By establishing a “rational regulatory framework,” the SEC aims to offer clarity on token issuance, custody, and trading while deterring fraud.
- Recent Legislative Developments: The introduction of the Digital Asset Market Clarity (CLARITY) Act in the House and stablecoin legislation in the Senate aligns with the SEC’s move.
- Market Reaction: Bitcoin and major altcoins saw modest pullbacks despite positive regulatory news, reflecting cautious optimism in crypto markets.
- Implications for VASPs and Wallet Providers: Clearer rules may lower compliance uncertainty for virtual asset service providers (VASPs) and non-custodial wallet developers, potentially spurring innovation.
- Investor Takeaways: Transparent rulemaking is expected to reduce legal ambiguity, encourage institutional participation, and provide safeguards against illicit schemes.
Introduction
In early June 2025, the U.S. Securities and Exchange Commission (SEC), led by newly appointed Chair Paul S. Atkins, announced a fundamental change in how it will approach cryptocurrency regulation. Rather than relying on enforcement actions—litigating against perceived violations, as under previous leadership—the SEC intends to adopt a formal notice-and-comment rulemaking process. This paradigm shift, first articulated by Chair Atkins during testimony before the Senate Appropriations Subcommittee on Financial Services on June 3, 2025, reflects a broader objective: to promulgate clear, democratically vetted regulations that foster transparency and investor protection in digital asset markets.
The notice-and-comment approach aligns with the Administrative Procedure Act (APA), which mandates that U.S. regulatory bodies publish proposed rules in the Federal Register, solicit public feedback for a specified period, and revise proposals based on substantive comments before issuing final rules. By embracing this method, the SEC aims to reduce regulatory uncertainty for market participants and encourage innovation in areas such as token issuance, custody, and trading. Moreover, this shift dovetails with recent legislative efforts—including the House’s Digital Asset Market Clarity (CLARITY) Act and ongoing Senate stablecoin proposals—that seek to establish a comprehensive framework for digital assets. In this article, we examine the background of the SEC’s regulatory stance on cryptocurrency, the mechanics and implications of notice-and-comment rulemaking, recent market and legislative developments, and the potential impacts on virtual asset service providers (VASPs), wallet developers, and investors.
Background of SEC’s Regulatory Approach
Enforcement-First Under Gary Gensler
Between 2021 and early 2025, the SEC under Chair Gary Gensler adopted a predominantly enforcement-first strategy toward crypto. Gensler’s SEC filed lawsuits against several major exchanges—most notably Coinbase and Binance—alleging that many tokens qualified as unregistered securities. In addition, the regulator pursued settlements with platforms it viewed as operating outside securities laws. Critics argued that this method lacked transparency, as rules effectively emerged through litigation rather than through formal rulemaking channels. As a result, digital asset firms often faced uncertainty over which tokens would be classified as securities, and market participants accused the SEC of stifling innovation and discouraging institutional involvement.
Appointment of Paul Atkins
On January 20, 2025, President Donald J. Trump nominated Paul S. Atkins to chair the SEC, and after Senate confirmation on April 9, 2025, Atkins was sworn in on April 21, 2025. Atkins brought a reputation as a crypto advocate; during his previous tenure as an SEC commissioner in the early 1990s, he emphasized investor education and light-touch regulation. Many in the industry welcomed his appointment, anticipating that Atkins would restore clarity by shifting away from enforcement-first tactics and toward explicit rulemaking. In his remarks to the Senate, he underscored the need for “clear rules of the road” for digital assets, noting that the commission will utilize existing statutory authority to create “fit-for-purpose standards” for market participants.
Shift to Notice-and-Comment Rulemaking
Announcement at Senate Hearing
In testimony before the Senate Appropriations Subcommittee on June 3, 2025, Chair Atkins declared:
“My approach to crypto will be done through notice-and-comment rulemaking, not through regulation by enforcement. The commission will utilize its existing authorities to set fit-for-purpose standards for market participants.”
This statement signaled that the SEC will formally propose regulations via the Federal Register, allow 30–60 days (or more) for market participants, academics, and the general public to submit comments, and then incorporate salient feedback into the final rules, providing reasoned explanations for any changes. Under the APA’s Section 553, when the SEC publishes a Notice of Proposed Rulemaking (NPRM), it must:
- Publish the proposed rule in the Federal Register, accompanied by an explanation of the rule’s purpose and legal basis.
- Open a public comment period, typically spanning 30–60 days, during which stakeholders can submit feedback.
- Consider and respond to significant comments, adjusting the proposal as needed.
- Publish a final rule with a response to public comments and a justification of any modifications.
By contrast, under Gensler’s tenure, the SEC frequently relied on enforcement actions—often in the form of cease-and-desist orders or lawsuits—to clarify its stance on which tokens constituted securities. While enforcement can deter wrongdoing, it does not provide advance notice to the industry and can leave market participants uncertain about compliance requirements. Notice-and-comment rulemaking, however, fosters a more inclusive and transparent process, allowing token issuers, exchanges, service providers, and investors to shape regulations before they take effect.
How Notice-and-Comment Works
Publication in Federal Register
When the SEC identifies a need for a new regulation—such as defining a clear framework for token issuance or establishing custody standards for digital assets—it drafts a rule proposal. This proposal outlines the regulatory text, the statutory or legal rationale, and an analysis of potential costs and benefits. Once finalized internally, the SEC publishes the proposal as a Notice of Proposed Rulemaking (NPRM) in the Federal Register.
Public Comment Period
Following publication, the NPRM enters a designated comment period, typically lasting 30–60 days. During this time, any individual or organization—crypto exchanges, blockchain developers, institutional investors, academia, consumer advocates, or ordinary citizens—can submit written feedback. Comments may address particular provisions (e.g., whether a custody requirement is too onerous for small wallet providers) or offer broader suggestions (e.g., clarifying which tokens qualify as securities). The SEC must collect, catalog, and review each comment submitted during the public period.
Consideration and Revision
After the comment period closes, SEC staff analyze the input. They identify common themes—such as concerns over compliance burdens, suggestions for technical adjustments, or requests for carve-outs for certain token types—and evaluate whether revisions are warranted. If substantial changes arise from feedback (e.g., extending compliance timelines or differentiating between types of crypto custody), the SEC revises the proposal accordingly. The agency then drafts a release that includes:
- A summary of substantive comments and responses, explaining why certain suggestions were adopted or rejected.
- The final regulatory text, with amendments from the initial proposal clearly indicated.
- A cost-benefit analysis reflecting the revised rule’s potential economic impact.
Once completed, the SEC publishes the Final Rule in the Federal Register and sets an effective date—often 30–60 days after publication—allowing market participants time to align operations.
Democratic and Predictable
Proponents assert that notice-and-comment ensures democratic input; stakeholders can voice concerns or offer industry expertise. Instead of reacting to enforcement cases with uncertain outcomes, firms gain advance visibility into forthcoming regulations. Predictability encourages investment: when token issuers, exchanges, and VASPs have clear regulatory guardrails, they can allocate resources confidently rather than hoard legal budgets to defend potential enforcement actions.
Contrast with Enforcement-Driven Regulation
Under the previous administration, the SEC frequently leveraged enforcement actions to dissuade perceived malpractices. For instance, the agency sued Coinbase in 2023, alleging its staking-as-a-service offering violated federal securities laws. Similarly, Binance faced allegations that certain tokens traded on its platform constituted unregistered securities. These high-profile cases generated headlines—and market volatility—but provided little advance clarity: firms only learned of regulatory interpretations through litigation.
Critics argue that enforcement-driven regulation can be arbitrary, as the SEC might target particular firms without outlining consistent principles applicable to the broader market. Absent formal rules, some firms may assume they operate compliantly until the SEC alleges otherwise. In contrast, notice-and-comment rulemaking articulates policy objectives and legal bases upfront, requiring transparent justification for both the proposed rule and the final version. This transparency can mitigate perceptions of regulatory overreach.
Recent Legislative and Regulatory Context
Digital Asset Market Clarity (CLARITY) Act
In parallel with the SEC’s internal shift, Congress is moving toward comprehensive crypto legislation. On May 30, 2025, the House of Representatives introduced the Digital Asset Market Clarity (CLARITY) Act. This bill seeks to provide statutory definitions for digital assets, segregate tokens into “securities,” “commodities,” and “utility assets,” and establish federal oversight requirements for each category. If enacted, the CLARITY Act would codify many principles the SEC intends to implement via notice-and-comment rulemaking.
Senate Stablecoin Legislation
Concurrently, the Senate is advancing stablecoin legislation to address concerns about issuer reserves, redemption rights, and systemic risk. Senators aim to define “covered stablecoins” and require issuers to maintain fully audited reserves, submit periodic reports to the Federal Reserve, and implement consumer protection safeguards. Because stablecoins straddle the line between payment instruments and securities, clarity from both Congress and the SEC is crucial. In his June 3 testimony, Chair Atkins noted that formal rulemaking would enable coordination with new federal statutes governing stablecoins.
Presidential and Administration Support
President Trump’s administration has signaled support for making the United States a global crypto hub. As early as May 2025, the White House issued a statement acknowledging the need for balanced regulation to foster innovation while safeguarding investors. Chair Atkins’s approach aligns with this vision, as formal rulemaking affords regulatory certainty that entrepreneurs and VASPs require to scale operations.
Market and Industry Reactions
Crypto Market Volatility
Despite the positive regulatory signals, crypto markets saw muted price reactions. On June 6, 2025, Bitcoin (BTC) pulled back by roughly 2.3% to trade near $105,935, retreating from an all-time high above $111,000 earlier in May. Ether (ETH) fell 3.4%, XRP dropped 3.9%, and Solana (SOL) declined 5.3%. Traders interpreted the shift in SEC strategy as a long-term positive but recognized that formal rulemaking could still impose compliance burdens. Until specific rule texts emerge, uncertainty lingers.
Industry Optimism
Many VASP executives and blockchain entrepreneurs voiced cautious optimism. Under enforcement-based regulation, firms often budgeted millions in legal fees to defend potential token listings. Now, with notice-and-comment, they anticipate filing comment letters to shape rule proposals rather than reacting to enforcement warnings. “Having clarity on which tokens qualify as securities will allow us to list new assets with confidence,” said a spokesperson for DefiConnect, a decentralized exchange startup. Another founder noted that transparent custody requirements could lower insurance premiums for wallet providers.
Critiques and Concerns
However, not all industry voices applauded the move without reservation. Some argue that notice-and-comment can be protracted; the entire process—from initial proposal to final rule—might span nine to twelve months or longer. During this period, firms could still operate in a gray area. Furthermore, smaller startups worry that their comments may be overshadowed by larger incumbents with sophisticated lobbying capabilities. To address such concerns, Chair Atkins pledged to institute a “tiered comment process” that highlights feedback from emerging projects. It remains to be seen how effectively the SEC will implement this promise.
Implications for Virtual Asset Service Providers (VASPs) and Wallet Developers
VASP Compliance and Registration
Under notice-and-comment rulemaking, the SEC is expected to clarify registration requirements for broker-dealer VASPs. Historically, some VASPs operated under state-level money transmitter licenses or as exempt entities; however, the SEC alleged in certain enforcement actions that these VASPs were effectively functioning as unregistered broker-dealers when facilitating token trades. In the forthcoming rulemaking, VASPs should see explicit criteria for when they must register, what disclosures they must file, and how they must segregate customer assets.
Custody Standards
A major pain point for wallet developers—especially custodial wallet services—has been uncertainty over whether holding private keys on behalf of customers constituted “custody” under securities laws. Previous guidance was piecemeal, derived from enforcement actions rather than codified regulation. Under the new process, the SEC is likely to delineate custody standards: minimum cybersecurity protocols, insurance or bonding requirements, and incident reporting obligations. For non-custodial wallet providers, formal distinctions may be drawn to exempt them from certain obligations, so long as they do not hold user keys or fiat on users’ behalf.
Token Issuance and Listing
Crypto projects seeking to launch tokens—whether as fungible utility tokens, yield-bearing governance tokens, or tokenized securities—face persistent ambiguity over how state and federal laws apply. Under notice-and-comment, the SEC is anticipated to publish guidelines specifying factors for determining whether a token is a security (often guided by the Howey test). Moreover, listing requirements for exchanges will be clarified, including standards for due diligence, KYC/AML obligations, and ongoing reporting for token issuers. Such clarity could streamline the path for many projects to launch initial coin offerings (ICOs) or token generation events (TGEs) in compliance with U.S. law.
Impacts on Non-Custodial Wallets
Many emerging non-custodial wallets—like the user-developed ‘dzilla Wallet’—have prioritized UX transparency when facilitating in-wallet swaps (e.g., BTC-to-ETH). Under vague regulatory conditions, wallet developers hesitated to integrate certain on-chain swap features due to uncertainty over whether such integrations constituted broker-dealer activity. With notice-and-comment, the SEC could clarify that simple on-chain swaps routed through decentralized liquidity pools do not trigger broker-dealer registration, provided the wallet does not take custody of user assets. This would empower next-generation wallets to offer seamless multi-chain swaps without full licensing burdens.
Broader Legislative Alignment
Coordination with Congress
The SEC’s embrace of formal rulemaking complements ongoing Congressional efforts. The CLARITY Act, introduced in the House, seeks to codify definitions and regulatory boundaries for digital assets, which dovetail with the SEC’s planned rule proposals. If both the SEC’s rules and the CLARITY Act’s statutory framework align, the U.S. could achieve a unified approach: federal law would delineate baseline definitions and oversight authority, while the SEC’s regulations specify technical requirements for custody, trading, and token issuance.
Senate Stablecoin Bill
In the Senate, lawmakers are finalizing stablecoin legislation that would require issuers to maintain full reserves, establish redemption rights, and submit to regular audits. Since stablecoins play a central role in DeFi—facilitating on-chain lending, derivatives, and payments—the SEC’s rulemaking process must harmonize with stablecoin statutes. For instance, if Congress defines “covered stablecoins” under bank-like prudential standards, the SEC may exclude these coins from securities regulations or set tailored conditions. Such coordination is crucial to prevent regulatory contradictions that could hamper stablecoin adoption or drive issuers overseas.
Implications for Investors
Reduced Legal Ambiguity
One of the primary advantages of notice-and-comment rulemaking is that investors gain advance knowledge of the rules governing token offerings, custody arrangements, and trading platforms. Rather than purchasing tokens that may later be deemed unregistered securities, investors can review proposed rules, submit questions during the comment period, and adjust investment decisions accordingly. In effect, formal rulemaking reduces the risk of sudden enforcement actions that could freeze assets or label tokens as illegal.
Potential for Institutional Participation
Institutional investors—such as hedge funds, endowments, and asset managers—have often cited regulatory ambiguity as a barrier to deploying capital in crypto markets. Formal rulemaking, particularly if consistent with Congressional definitions, can enable institutional due diligence: custodians can establish compliant custody solutions; broker-dealers can offer tokenized securities under clear registration guidelines; and exchanges can list tokens with well-defined compliance programs. This environment could lead to increased institutional inflows, further professionalizing the market and reducing volatility.
Safeguards Against Fraud
By codifying anti-fraud provisions, custody requirements, and issuer disclosures, the SEC aims to shield investors from illicit schemes—rug pulls, exit scams, or false tokenomics. Notice-and-comment allows consumer advocates and academic researchers to highlight potential loopholes before finalization. For instance, if a token’s whitepaper makes misleading yield promises, commenters could suggest that the SEC include language requiring audited financial statements from token issuers. Such proactive input helps the SEC draft robust safeguards to protect retail investors.
Near-Term Uncertainties and Timelines
Duration of Rulemaking
While notice-and-comment is more transparent, it tends to be more time-consuming than enforcement actions. Historically, complex rulemakings—such as net capital rule amendments for broker-dealers—have taken upward of a year from NPRM to final rule. For crypto, stakeholders may see an initial proposal by late summer 2025, followed by a comment period through fall, and a final rule by the first quarter of 2026, assuming no significant delays. In the interim, enforcement actions could resume if firms are found to operate in clear violation of existing statutes.
Transitional Guidance
To bridge the gap between new proposals and existing operations, Chair Atkins has indicated the SEC will issue “transitional guidance” to clarify how current enforcement policies apply. For instance, firms that listed certain tokens prior to a final rule might receive a grace period to register or comply with updated requirements. Likewise, crypto exchanges awaiting approval of their ATS (Alternative Trading System) status for non-securities tokens—like Bitcoin and Ethereum—could operate under interim no-action letters if they meet baseline conditions. Such transitional measures aim to prevent market disruptions during the rulemaking window.
Strategic Considerations for Crypto Businesses
Early Engagement
Firms should actively monitor the SEC’s Federal Register for NPRMs related to digital assets. When a proposal is published, stakeholders can prepare comment letters outlining technical recommendations, economic analyses, and legal arguments. Engaging early—in the first weeks of the comment period—ensures that fresh insights shape the SEC’s understanding. Many crypto associations, such as the Chamber of Digital Commerce and the Blockchain Association, are likely to coordinate collective comment efforts, pooling resources to address complex issues.
Infrastructure Investment
Given that final rules may mandate specific cybersecurity protocols, KYC/AML processes, and accounting standards, infrastructure investments are critical. VASPs should evaluate existing wallet security measures—multi-party computation (MPC), hardware security modules (HSMs), and cold storage best practices—and ensure compliance with anticipated custody rules. Exchanges may need to expand internal audit functions, hire compliance officers familiar with securities law, and integrate advanced transaction monitoring systems to detect fraud or money laundering. Companies that stay ahead of technical requirements will reduce adjustment costs once final rules take effect.
Collaboration with Legislatures
While the SEC’s rulemaking is central, firms can also collaborate with legislators to ensure that statutory definitions in the CLARITY Act and stablecoin bills align with regulatory expectations. By building relationships with Congressional staff, industry experts can offer real-world insights—such as how an overly broad definition of “security” might inadvertently capture purely utility tokens. This dual-track engagement, with both the SEC and Capitol Hill, maximizes the industry’s influence over the final regulatory landscape.
Implications for Retail Crypto Enthusiasts
Increased Confidence
Retail crypto investors, who previously navigated a patchwork of state and federal regulations, can expect clearer guidance on which platforms and tokens comply with U.S. law. For example, if a prominent token is designated as a security, retail investors will know that only registered broker-dealers may list it. This prevents ordinary users from unknowingly trading illicit tokens or risking account freezes. Over time, enhanced retail confidence may drive broader crypto adoption, bolstering on-chain metrics such as daily active addresses, transaction volumes, and DeFi Total Value Locked (TVL).
Continued Volatility
Despite regulatory clarity, crypto markets will likely remain volatile, influenced by macroeconomic factors, technological breakthroughs (e.g., Ethereum’s next upgrade), and global geopolitics (e.g., central bank digital currency pilots, China’s crypto policy). The SEC’s formal rulemaking cannot eliminate price swings but can reduce regulatory headlines as a source of sudden market shocks. Ultimately, crypto enthusiasts should remain vigilant, employing risk management strategies—position sizing, stop-loss orders, and portfolio diversification—while tracking regulatory developments.
Looking Ahead: A More Predictable Environment
The SEC’s adoption of notice-and-comment rulemaking represents a pivotal moment in U.S. crypto regulation. By moving away from ad hoc enforcement and toward a transparent process, Chair Atkins aims to instill greater regulatory certainty. Market participants—VASPs, exchanges, wallet developers, institutional investors, and retail traders—can now anticipate a timeline for regulations, participate in shaping those rules, and adjust business models in advance. The simultaneous legislative momentum in Congress, through bills like the CLARITY Act and stablecoin frameworks, suggests a coordinated federal approach that balances innovation with investor protection.
However, the devil is in the details. Success depends on the SEC’s ability to draft balanced proposals that address industry concerns without undermining core investor safeguards. It also hinges on meaningful engagement during the public comment period—both from seasoned players and smaller startups whose perspectives may differ. With the potential for nine to twelve months of rulemaking, transitional guidance will be critical to avoid regulatory gaps. For now, though, the crypto industry can take solace in knowing that, for the first time in years, it will have a clear seat at the table as U.S. policy is crafted.
Conclusion
The Securities and Exchange Commission’s pivot to notice-and-comment rulemaking under Chair Paul Atkins marks a watershed for American digital asset regulation. Moving away from enforcement-based tactics addresses longstanding criticisms of opacity and uncertainty. By publishing proposals in the Federal Register, soliciting and addressing public feedback, and issuing reasoned final rules, the SEC aims to build a “rational regulatory framework” that clarifies token classifications, custody obligations, and trading standards. This transformation aligns with legislative initiatives in the CLARITY Act and stablecoin bills, promising a more cohesive federal approach to crypto oversight.
For VASPs, exchanges, wallet developers, and investors, this new model offers predictability: companies can plan compliance roadmaps; investors can assess token risks with concrete regulatory parameters; and developers can innovate with a clearer understanding of boundaries. While the notice-and-comment process may extend over many months, transitional guidance is expected to bridge the gap. Ultimately, as the U.S. seeks to become a global crypto capital, transparent rulemaking is a crucial step toward fostering innovation, protecting investors, and nurturing sustainable growth in the digital economy.
