On March 20, 2025, the SEC’s Staff of the Division of Corporation Finance (the “Division”) issued a statement providing its views that crypto mining activities (as defined in its statement) do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933, as amended (the “Securities Act”), and Section 3(a)(10) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Therefore, these activities do not require registration under the Securities Act, nor do they need to fall within one of the exemptions from registration. The statement focuses on the mining of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless, proof of work (“PoW”) network, such as Bitcoin and Dogecoin, and are used to participate in, and/or are earned for participating in, such network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the network’s technological operation and security (such crypto assets, “Covered Crypto Assets” and, such mining activities on a PoW network, “Protocol Mining”). Importantly, the statement is narrowly tailored and only addresses certain types of mining activities. The statement is not dispositive as to whether any specific mining activity involves the offer or sale of a security, which the Division states is a fact-specific inquiry.
What Is Protocol Mining?
Protocol mining networks use cryptography and economic design to verify transactions and provide settlement assurances to network users without the need of trusted intermediaries. One of the most common proofing or consensus mechanisms for crypto networks is PoW. PoW is used in public, permissionless blockchains and incentivizes network transaction validation by rewarding network participants (“miners”) for adding computational resources to the network. Miners compete to validate batches of transactions by solving complex mathematical puzzles that require significant computational effort in exchange for rewards in the form of crypto assets. Originally designed as an anti-spam mechanism, the degree and difficulty of computational effort or “work” in PoW provides the network with security and integrity by making it difficult and costly to manipulate the blockchain. Miners can work solo or join “mining pools” to combine computational resources and increase the probability of earning rewards.
The Division’s statement specifically speaks to “Mining Activities,” which it defines as (1) the mining of Covered Crypto Assets on a PoW network undertaken in connection with solo mining or mining pools and (2) the roles of mining pools and pool operators involved in the Protocol Mining process, including their roles in connection with the earning and distribution of Covered Crypto Assets rewards to the miners in the pool in exchange for a fee.
The Division’s View
It is the Division’s view that the Mining Activities do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act, because Covered Crypto Assets do not meet the definition of a “security” using the “investment contract” test from the Supreme Court’s decision in SEC v. W.J. Howey Co.[1]The Division concludes that Mining Activities do not meet the Howey test, because miners do not have a reasonable expectation of profits derived from the efforts of others. Rather, miners provide their own computational resources, which secure the network and enable them to earn rewards issued by the network in accordance with its software protocol. Miners do not rely on any third party’s managerial or entrepreneurial efforts for the network’s success or their rewards. Miners perform an administrative or ministerial activity to secure the network, validate transactions and add new blocks, and receive rewards.
In a particularly important part of the statement, the Division noted that whether miners mine on their own or join a mining pool does not change the nature of their activity or their relationship with the network or the crypto asset. As part of this, the Division’s statement also addresses the roles of mining pools and pool operators. The Division’s view is that pool operators’ activities are also primarily administrative or ministerial in nature and do not satisfy the Howey test’s “efforts of others” requirement under the facts and circumstances detailed in the statement.
The Division’s statement is part of the SEC’s ongoing effort to provide greater clarity regarding the application of the federal securities laws to crypto assets and activities. The statement is not a rule or regulation under the federal securities laws or guidance or a statement provided by the SEC and, as a result, does not have the force or effect of law. The statement reflects the Division’s views based on the facts and circumstances presented, does not extend to other similar facts and circumstances (for example, situations that differ based on the way in which pool members may be compensated, how miners or other persons may participate in mining pools, or the activities conducted by pool operators), and may change as the crypto industry evolves. However, this does not diminish the importance of the statement in providing direction and a measure of clarity to a significant area in the crypto asset sector.
Lastly, as noted above and consistent with other SEC statements regarding the crypto asset sector in the past two months, the Division stressed that facts and circumstances-based analyses will continue to be important in determining whether federal securities laws apply to crypto asset activities. In this case, the Division stated that its view is not dispositive as to whether any specific mining activity involves the offer and sale of a security such that a definitive determination requires analyzing the facts relating to the specific mining activity.
The full Division statement is available here.
Crenshaw Dissent
SEC Commissioner Caroline Crenshaw issued a dissenting statement in which she criticized the Division’s issuance of non-binding statements for being outside of the regular rule-making process, which involves soliciting feedback from market participants and not relying on hypothetical situations and market participant motivations to issue guidance. Commissioner Crenshaw notes that the Division’s statement assumes the premise that miners choose to mine “merely” to receive rewards in the form of crypto assets and not to profit from the managerial efforts of others to support its finding, which, in her words, is “relying on its ability to read the minds of crypto miners.” Commissioner Crenshaw also notes that the Division illogically caveats its own statement by stating that its intent is to address PoW generally and not any of the variations on PoW and, further, that making a determination under Howey requires a fact-specific analysis and determination based on the economic realities and real-world arrangements. She concludes that the Division’s statement leaves market participants in the same position as they have been in and cautions participants to recognize the limitations of the statement. Commissioner Crenshaw’s full statement, titled “Crypto Mining Statement: The Flame in Plato’s Cave,” is available here.
[1] Covered Crypto Assets are not within the non-exhaustive statutory definition of a security under Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act. Therefore, the Division analyzes Covered Crypto Assets under the Howey test, which is used to analyze arrangements or instruments not listed in those statutory sections. The Howey test involves a four-part analysis: a security exists if there is (1) an investment of money in (2) a common enterprise with (3) a reasonable expectation of profits (4) to be derived from the efforts of others. 328 U.S. 293 (1946).
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