In his letter to U.S. Rep. Ted Budd, U.S. Securities and Exchange Commission Chairman Jay Clayton agreed with Division of Corporate Finance Director Bill Hinman's framework to assess what digital assets are securities. According to Clayton, the distinction depends on the character of the offering and not the terminology used to describe it.
Clayton writes, “token is offered or sold as an investment contract, and therefore is an offer or sale of a security.” Whether a crypto asset is a security depends “on the facts and circumstances, including the economic realities of the transaction.”
Clayton also agrees that the character of a digital asset is not “static” and can change over time. “A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition,” wrote Clayton.
Clayton also said, “I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.”