Despite the launch of Bitcoin in 2009, the SEC finally built the first framework for the crypto asset class through its August 18, 2026 proposal of “Regulation Crypto Assets”. While this proposal represents a critical development for crypto fund managers, it also requires careful analysis to understand how it could affect crypto fund operations and capital formation strategies.
Notably, this is still only a proposed framework and will need to go through a lengthy process, which includes a comment period, before it can become effective. The SEC opened its comment portal on August 19th and the formal 60 day comment period begins upon publication in the Federal Register. Here’s what you need to know before you comment:
What is Regulation Crypto Assets?
In response to what crypto advocates have been requesting for years, Regulation Crypto Assets creates a “fit for purpose” framework for certain investment contracts involving crypto assets. This serves as a major development to better serve and regulate crypto given the mismatch of the SEC’s existing rules designed for traditional assets like stocks and bonds. The proposed framework includes three main components:
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Two New Offering Exemptions:
- Startup Exemption:
The Startup Exemption is designed for early stage projects still in development and permits issuers to raise up to $5 million over a 4 year period without registering with the SEC. This therefore allows founders to access capital for development without the full burden of SEC registration.
- Fundraising Exemption:The Fundraising Exemption is intended for more mature projects and allows for offerings of up to either $20 million per 12 month period under Tier 1, or up to $75 million per 12 month period under Tier 2. Tier 2 offerings require audited financial statements, whereas Tier 1 has less stringent financial reporting requirements.
The table below summarizes the key requirements and characteristics of each exemption:
| Feature | Startup Exemption | Tier 1 Fundraising Exemption | Tier 2 Fundraising Exemption |
| Capital Limit | $5 million over 4 years | $20 million per 12 months | $75 million per 12 months |
| Investor Eligibility | Retail investors allowed | Nonaccredited up to 10% of income/net worth | Nonaccredited up to 10% of income/net worth |
| SEC Filing | Website based disclosure only; no Form 1-CRYPTO | Form 1-CRYPTO (SEC qualified) | Form 1-CRYPTO (SEC qualified) |
| Financial Statements | Not required | Required (unaudited acceptable) | Audited financial statements required |
| Ongoing Reporting | Not required | Annual, semi-annual, and current reports | Annual, semi-annual, and current reports |
| Affiliate Sales Cap | N/A | $6 million | $22.5 million |
| Issuer Eligibility | Open to individuals and entities | U.S. organized; U.S. executive officers/directors | U.S.-organized; U.S. executive officers/directors |
| Best For | Early stage projects in active development | Growing projects seeking material capital | Established projects raising substantial capital |
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Conditional Safe Harbor
The conditional safe harbor established under Regulation Crypto Assets creates a pathway for crypto assets to transition away from being treated as a security (or investment contract) by operating outside the securities framework altogether. Once the issuer completes the essential managerial efforts it promised to undertake (such as protocol development, funding, or strategic direction), the underlying security may no longer be considered an investment contract. However, the analysis of determining when “essential managerial efforts” have been completed requires a fact intensive analysis with careful documentation.
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Federal Preemption of State Requirements
Lastly, the proposal would preempt state registration and qualification requirements for offerings made under these exemptions, eliminating one of the most fragmented compliance challenges in crypto fundraising. Instead of navigating various state blue sky laws and coordinating with 50 state securities regulators, issuers could comply under one federal regime.
Why this Matters Now
Regulation Crypto Assets is the SEC’s first formal rulemaking translating principles previously released through interpretive guidance into concrete exemptions and requirements that could actually be used. For funds that previously had to function under rules meant for traditional securities, this represents a potential opening to operate with far greater regulatory clarity. As such, Regulation Crypto Assets offers the potential to raise capital faster, allow for freely tradeable tokens, and provide an exit from SEC oversight.
What’s Next?
Regulation Crypto Assets is by no means a final rule and the SEC has opened a 60-day comment period where regulators hope to receive feedback on fundamental questions such as the scope of covered investment contracts, appropriate offering limits, disclosure requirements, and how the safe harbor should operate in practice. If you manage a crypto fund, are wishing to launch one, or are otherwise operating in this space, this is your opportunity to help shape the final rule.
We’re here to help navigate and monitor these developments. Contact us to discuss how this proposal affects your fund and to develop a strategy that aligns with your interests.