Crypto In The Courts: Five Cases Reshaping Digital Asset Regulation In 2025 – Fin Tech
There has rarely been a larger or more widely distributed
financial market that existed in a more uncertain regulatory
context than cryptocurrencies and decentralized finance (DeFi) at
the start of 2025. In the past several years, the regulatory status
of this asset class in the United States has been at the center of
a concerted effort by the US Securities Exchange Commission (SEC)
to apply the regime applicable to securities to diverse crypto
instruments and methods of exchange and transfer. (Although the
Commodity Futures Trading Commission (CFTC) has also consistently
enforced its regulations on products it deems to be commodities,
that effort has not led to the widespread litigation that is likely
to define the regulatory status of these products.)
The SEC’s effort is now in jeopardy. As we begin 2025, the
legal landscape surrounding digital assets stands at a critical
inflection point, with several watershed cases poised to reshape
how these assets will be governed, traded, and regulated in the
United States. The convergence of these cases — spanning
securities law, administrative procedure and federalism —
presents opportunities to clarify how traditional legal frameworks
apply to digital assets. Further, the Trump administration has
promised that it will be a “pro-crypto” administration
— driving the SEC towards a friendlier stance with the
cryptocurrency industry and having cryptocurrency rules and
regulations “written by people who love [the] industry, not
hate [the] industry”1 — and that the United
States will become the “crypto capital of the
world.”2 President Donald Trump has nominated Paul
Atkins, a former SEC Commissioner, to become the next SEC
chairperson, stating in his announcement that Mr. Atkins
“recognizes that digital assets & other innovations are
crucial to Making America Greater than Ever
Before.”3 The Trump administration’s announced
intention to change the course of cryptocurrency regulation and the
selection of an SEC chairperson who is an avowed advocate for
innovation through blockchain technologies raise questions about
the future of the pending litigation at the center of this
industry.
This article examines five cases that may define the future of
digital asset regulation in the United States and sets out the
issues at stake in those cases. These cases are the Second
Circuit’s review of SEC v. Ripple Labs, Inc., the
interlocutory appeal in SEC v. Coinbase, Inc., and three
cases representing the industry’s shift toward offensive
litigation against federal agencies — Blockchain
Association v. IRS, Bitnomial Exchange, LLC v. SEC, and
Kentucky et al. v. SEC. The purpose of this article is not
to predict how those cases will progress — that determination
is going to lie in the hands of the courts and policymakers —
but rather to make clear what is at stake, especially in light of
an anticipated shift in regulatory priorities regarding digital
assets with the Trump administration, which could decide to no
longer support the government’s positions in these cases.
SEC v. Ripple Labs, Inc. (2d Cir.)
The SEC’s appeal in SEC v. Ripple Labs, Inc.
follows a July 2023 ruling in the Southern District of New York
that began when the SEC charged Ripple Labs, Inc. (Ripple) with
conducting an unregistered securities offering through sales of its
XRP token. The SEC argued that the offer and sale of XRP tokens
constituted an offer and sale of investment contracts under SEC
v. W.J. Howey, which provides that an “investment
contract” is a contract, transaction, or scheme whereby a
person: (1) “invests his money” (2) “in a common
enterprise” and (3) “is led to expect profits solely from
the efforts of the promoter or a third party.”4 In
response, Ripple advanced an “essential ingredients
test,” arguing that in addition to the three-part
Howey test, investment contracts must also contain
“essential ingredients”: (1) “a contract between a
promoter and an investor that establishe[s] the investor’s
rights as to an investment,” which contract (2)
“impose[s] post-sale obligations on the promoter to take
specific actions for the investor’s benefit” and (3)
“grant[s] the investor a right to share in profits from the
promoter’s efforts to generate a return on the use of investor
funds.”5
The district court, in its July 2023 ruling, rejected
Ripple’s novel “essential ingredients” test, noting
that “in the more than seventy-five years of securities law
jurisprudence after Howey, courts have found the existence
of an investment contract even in the absence of Defendants’
‘essential ingredients,’ including in recent digital asset
cases in this District.”6 Nevertheless, the
district court found that, while Ripple’s institutional sales
violated securities laws, the company’s programmatic sales
(sales of XRP on digital asset exchanges) and other distributions
(such as employee compensation and third-party development
incentives) did not constitute securities offerings — marking
the first major setback to the SEC’s digital asset enforcement
initiative.7 Crucially, the district court distinguished
between XRP sales based on their economic reality: institutional
sales to sophisticated buyers under written contracts were deemed
securities transactions because buyers reasonably expected profits
from Ripple’s efforts, while programmatic sales on exchanges
were not because buyers could not know they were purchasing from
Ripple. The court also found that other distributions failed to
meet the basic requirements of an “investment of money”
since recipients did not provide payment to Ripple.
The SEC filed a notice of appeal on October 4, 2024, and Ripple
has cross-appealed. This will likely be the first appellate court
to consider how Howey applies to digital assets unless the
Trump administration determines to freeze the
litigation.8 The SEC filed its appellate brief on
January 15, 2025, arguing that the district court erred in
concluding that programmatic sales to retail investors were not
offers or sales of investment contracts under Howey
because “investors were led to expect profits” based on
the efforts of Ripple.9 The SEC also argued that other
distributions of XRP were also offers or sales of investment
contracts because Ripple the “recipients provided tangible and
definable consideration in return for Ripple’s
XRP.”10 Ripple will likely challenge whether
digital assets are ever securities under the Howey
framework.
The SEC maintains that the district court’s decision
“conflicts with decades of Supreme Court precedent and
securities laws.”11 If the SEC persists in this
appeal, it will likely be the first appellate court to consider how
Howey applies to particular types of primary sales of
digital assets and, more broadly, how securities laws are to be
applied to the digital asset economy. The appeal’s resolution
will provide important clarity on how federal securities laws apply
to various types of primary sales of digital assets.
SEC v. Coinbase, Inc. (2d Cir.)
On January 7, 2025, a Southern District of New York court
granted Coinbase Inc.’s motion to certify for interlocutory
appeal the court’s March 2024 order denying in substantial part
Coinbase’s motion for judgment on the pleadings.12
The certification permits the Second Circuit to address
Howey‘s reach and application to digital assets,
particularly in secondary market transactions.
The case arose from the SEC’s June 2023 enforcement action,
alleging that Coinbase operated as an unregistered national
securities exchange, broker and clearing agency by intermediating
transactions in 13 digital assets that the SEC claimed were
investment contracts and, thus, securities. The district court in
March 2024 rejected Coinbase’s argument that cryptoasset
transactions could not be investment contracts absent post-sale
contractual obligations between issuers and
purchasers.13
In granting Coinbase’s motion to certify for interlocutory
appeal, the court found that the case presents a “controlling
question of law regarding the reach and application of
Howey to cryptoassets, about which there is substantial
ground for difference of opinion.”14 In particular,
the court emphasized that applying Howey to
cryptocurrencies “is itself a difficult legal issue of first
impression for the Second Circuit” and questioned the adequacy
of the SEC’s application of Howey to secondary market
sales.15
The grant of interlocutory appeal is significant for several
reasons. First, it creates parallel tracks of appellate review in
the Second Circuit, as the SEC’s appeal in Ripple Labs
will also be pending. Both cases will allow the Second Circuit to
examine how Howey applies to digital assets but from
different procedural postures — Ripple Labs on final
judgment and Coinbase on interlocutory appeal from a
motion for judgment on the pleadings.
Second, the interlocutory appeal addresses a fundamental split
in the Southern District of New York regarding whether and how
Howey applies to secondary market transactions of digital
assets. Judge Torres in Ripple Labs drew a distinction
between Ripple’s institutional sales, which satisfied
Howey, and programmatic sales (i.e., blind bid-ask
transactions on exchanges), which did not. In contrast, Judge
Rakoff in SEC v. Terraform Labs and Judge Failla in
Coinbase declined to differentiate based on the manner of
sale, finding that Howey could apply equally to secondary
market transactions.16 The Second Circuit’s
resolution of this split will have profound implications for all
regulatory disputes relating to digital asset trading platforms, as
the designation as a security triggers the application of the
securities laws for all participants in the industry, including
issuers, traders, and trading platforms.
Third, the appeal will address the novel question of how a
digital asset’s “ecosystem” factors in the
Howey analysis. The district court in Coinbase
found that, unlike traditional commodities, cryptoassets lack
inherent value absent their digital ecosystem — a distinction
that helped justify treating them as securities.17
However, the district court also recognized in its certification of
its appeal that Coinbase raised “substantial ground” to
dispute this view of the ecosystem, noting Coinbase’s argument
that other commodities such as carbon credits, emissions allowances
and expired Taylor Swift concert tickets similarly have no inherent
value outside of the ecosystem in which they are issued or
consumed.18 The Second Circuit’s treatment of this
issue could influence how other courts analyze a wide range of
digital assets.
The implications for the digital asset industry are substantial.
Coinbase represents the largest US digital asset exchange, and the
SEC’s theory would subject most major trading platforms to
securities regulation. Resolution of the interlocutory appeal
could, therefore, provide crucial guidance on whether and when
trading platforms must register with the SEC.
Blockchain Association et al. v. IRS (N.D. Tex.)
On December 27, 2024, three blockchain industry organizations
filed suit in the Northern District of Texas, challenging
Department of the Treasury (Treasury) regulations that would impose
“broker” reporting requirements on DeFi
participants.19 The case represents a significant test
of Treasury’s authority to regulate the digital asset industry
through information reporting requirements.
The challenged regulations implement provisions of the
Infrastructure Investment and Jobs Act of 2021 requiring certain
digital asset brokers to report transaction information to the
Internal Revenue Service (IRS) on Form 1099-DA. The plaintiffs
argue that Treasury’s interpretation of who qualifies as a
“broker” exceeds its statutory authority. While Congress
defined brokers as persons who “effectuate transfers of
digital assets” for consideration, Treasury regulations extend
to anyone providing “facilitative services” who
theoretically could request customer information —
potentially including software developers, front-end interface
providers and other technology participants who never take custody
of assets or directly execute trades.
The complaint raises several significant challenges under the
Administrative Procedure Act (APA) and the US Constitution. The
plaintiffs argue that the regulations are arbitrary and capricious,
violating the APA by failing to engage in reasoned decision-making
and ignoring substantial evidence about the practical impossibility
of compliance for many DeFi participants. They also contend that
the rules violate the Fourth Amendment by compelling warrantless
collection of private information and the Fifth Amendment’s due
process requirements through unconstitutionally vague standards for
determining who qualifies as a broker.
The case has significant implications for the DeFi
industry’s future in the United States. According to the
IRS’s calculations, compliance with the regulations would cost
the industry over $260 billion annually — a potentially
existential burden for many DeFi projects. The plaintiffs argue
this would force US-based DeFi participants to either relocate
overseas, cease operations or fundamentally alter their business
models in ways that undermine decentralization.
The case is part of a recent trend of offensive litigation by
the cryptocurrency industry against federal agencies, as the
industry increasingly turns to the courts to challenge perceived
regulatory overreach. In doing so, litigants can at least initially
select the venue of these proceedings, subject to the restrictions
of the Federal Rules of Civil Procedure. Venue selection can be
critical as certain courts in Texas, and the Fifth Circuit itself,
have recently expressed criticism of expansive agency authority. In
November 2024, the Northern District of Texas vacated the SEC’s
rulemaking, expanding the definition of “dealer” under
the Securities Exchange Act of 1934 (Exchange Act).20
The same month, the Fifth Circuit reversed a decision wherein
Treasury imposed sanctions on Tornado Cash, a cryptocurrency
software protocol that conceals the origins and destinations of
digital asset transfers.21 The case remains in its early
stages, as the government has yet to respond to the complaint.
Bitnomial Exchange, LLC v. SEC (N. D. Ill.)
Bitnomial Exchange, LLC v. SEC marks a notable
offensive litigation against the SEC, with a futures exchange
regulated by the CFTC directly challenging the SEC’s authority
to regulate a cryptoasset security futures product.22
Filed in October 2024 in the Northern District of Illinois, the
case stems from Bitnomial’s attempt to list XRP futures
contracts after completing the CFTC’s self-certification
process. The complaint seeks both a declaratory judgment that XRP
futures are not security futures under the Exchange Act and
injunctive relief to prevent SEC oversight of these products.
Bitnomial argues that the SEC has created an impossible
regulatory situation by taking the view that XRP futures constitute
security futures, requiring both registration of the underlying
asset (XRP) as a security and Bitnomial’s registration as a
national securities exchange. The exchange contends this position
is legally untenable, particularly given the court’s ruling in
SEC v. Ripple Labs, Inc. that “XRP, as a digital
token, is not in and of itself a ‘contract, transaction[,] or
scheme’ that embodies the Howey requirements of an
investment contract,” and that anonymous secondary market
sales of XRP do not constitute investment
contracts.23
According to the complaint, even if Bitnomial were to accept the
SEC’s position that XRP futures are security futures,
compliance would be impossible because XRP itself is not registered
as a security with the SEC — a prerequisite for listing
single stock security futures under current regulations. Moreover,
Bitnomial, as a trading venue rather than the issuer, lacks the
authority to register XRP as a security.
The outcome of the litigation could have far-reaching
implications for how digital asset futures products are regulated
and traded in the United States. A ruling in Bitnomial’s favor
would reinforce the CFTC’s exclusive jurisdiction over
non-security futures products and potentially clear the way for
other futures exchanges to list similar products. Conversely, if
the SEC prevails, it could effectively prevent the listing of
futures contracts on many digital assets, as the vast majority of
digital assets are not registered as a security with the SEC and
cannot be registered by the exchanges seeking to list futures on
them. As cases are litigated across jurisdictions, there is also
the possibility of a split in how federal circuits view secondary
transfers of digital assets.
Kentucky et al. v. SEC (E. D. Ky.)
In November 2024, 18 states and a blockchain industry
association filed a lawsuit against the SEC in the Eastern District
of Kentucky, challenging the agency’s authority to regulate
digital asset trading platforms as securities exchanges. The case,
which remains in its initial stages, challenges the SEC’s
assertion of regulatory authority over digital asset trading
platforms, arguing that the agency’s approach improperly
preempts state money transmitter laws and interferes with state
unclaimed property regimes that many states have specifically
adapted for digital assets.
The states detail how they have developed specific regulatory
frameworks for crypto businesses, including licensing requirements
and consumer protection measures. Under the SEC’s
interpretation that most digital asset transactions constitute
securities transactions, platforms facilitating these transactions
would be required to register as securities exchanges, brokers or
dealers. The states argue that this interpretation would
effectively nullify their respective regulatory regimes, as the
Exchange Act prohibits states from imposing certain requirements
— including licensing and bonding requirements — on
entities that qualify as securities brokers or dealers. For
example, states such as Kentucky have issued guidance stating that
transmitters of digital assets are money transmitters under state
law. Still, this classification would be preempted if these
entities must register with the SEC as securities
intermediaries.
This case could help resolve a key question underlying several
ongoing SEC enforcement actions against major crypto exchanges:
whether secondary market transactions in digital assets on trading
platforms constitute securities transactions subject to SEC
oversight. A ruling that such transactions fall outside the
SEC’s authority could undermine the agency’s enforcement
strategy against these platforms. On the other hand, a decision
upholding the SEC’s interpretation could strengthen the
agency’s positions in these enforcement actions and potentially
impact other trading platforms currently operating in the United
States.
The timing of the lawsuit, filed just days after the 2024
presidential election, adds another layer of complexity to the
litigation.
Conclusion
The five cases examined above will help define the coming shift
in digital asset litigation under the new Trump administration.
While the Second Circuit’s consideration of Ripple
Labs and Coinbase will determine whether the manner
of sale creates meaningful distinctions under Howey, the
industry-led cases signal an equally important development: the
emergence of coordinated challenges to agency authority. The
Blockchain Association’s challenge to Treasury’s broker
regulations, Bitnomial’s challenge to the SEC’s claim of
authority over CFTC-regulated futures products, and 18 states’
defense of their regulatory frameworks collectively represent
sophisticated attempts to define and limit federal oversight of
digital assets.
The resolution of these cases, coupled with the anticipated
regulatory shifts under the new administration, could fundamentally
alter the landscape for digital asset innovation in the United
States. Market participants should closely monitor these
developments as they may significantly impact operational
strategies and regulatory obligations in the digital asset
space.
Footnotes
1 MacKenzie Sigalos, Here’s What Trump Promised
the Crypto Industry Ahead of the Election, CNBC (Nov. 6,
2024), https://www.cnbc.com/2024/11/06/trump-claims-presidential-win-here-is-what-he-promised-the-crypto-industry-ahead-of-the-election.html.
2 Mauricio Di Bartolomeo, Trump’s Top 3 Bitcoin
Promises and Their Implications, Forbes (Nov. 7, 2024), https://www.forbes.com/sites/mauriciodibartolomeo/2024/11/07/trumps-top-3-bitcoin-promises-and-their-implications/.
3 Rafael Nam, Trump Picks Crypto Backer Paul Atkins
as New Securities and Exchange Commission Chair, NPR (Dec. 4,
2024), https://www.npr.org/2024/12/04/g-s1-36803/trump-crypto-paul-atkins-sec-chair.
4 SEC v. W.J. Howey, 328 U.S. 293
(1946).
5 SEC. v. Ripple Labs, Inc., 682 F. Supp. 3d
308, 322 (S.D.N.Y. July 13, 2023).
6 Id.
7 Id.
8 Hanna Lang and Chris Prentice, Trump’s New SEC
Leadership Poised to Kick Start Crypto Overhaul, Sources Say,
Reuters (Jan. 15, 2025), https://www.reuters.com/world/us/trumps-new-sec-leadership-poised-kick-start-crypto-overhaul-sources-say-2025-01-15/
(noting top Republican official at the SEC are “reviewing some
crypto enforcement cases pending in the courts.”).
9 Brief for SEC at 27-28, SEC v. Ripple, No.
24-2648 (2d Cir. Jan. 15, 2025) (“Ripple publicly promised
that it would create a rising tide that would lift the price of XRP
for all investors, whether having purchased from Ripple, its
affiliates, or a third party.”).
10 Id. at 49-50 (citing Intl. Teamsters v.
Daniel, 439 U.S. 551, 560 n. 12 (1979) for the proposition
that an “investment of money” under Howey
includes “goods and services” so long as the investor
provides “some tangible and definable
consideration.”).
11 Nikhilesh De, SEC Files Notice of Appeal in Case
Against Ripple (Oct. 2, 2024), CoinDesk, https://www.coindesk.com/policy/2024/10/02/sec-files-notice-of-appeal-in-case-against-ripple.
12 SEC v. Coinbase, Inc., No. 1:23-cv-04738-KPF
(S.D.N.Y. Jan. 7, 2025).
13 SEC v. Coinbase, Inc., 726 F. Supp. 3d 260
(S.D.N.Y. Mar. 27, 2024).
14 Supra note 9 at 12.
15 Id. at 26.
16 SEC v. Terraform Labs Pte. Ltd., 684 F. Supp.
3d 170, 197 (S.D.N.Y. July 31, 2023) (“It may also be
mentioned that the Court declines to draw a distinction between
these coins based on their manner of sale, such that coins sold
directly to institutional investors are considered securities and
those sold through secondary market transactions to retail
investors are not.”); Coinbase, Inc., 726 F. Supp. 3d
at 293 (“Contrary to Defendants’ assertion, whether a
particular transaction in a crypto-asset amounts to an investment
contract does not necessarily turn on whether an investor bought
tokens directly from an issuer or, instead, in a secondary market
transaction.”).
17 Coinbase, Inc., 726 F. Supp. 3d at 295.
18 Coinbase, Inc., No. 1:23-cv-04738-KPF at
*28.
19 Blockchain Ass’n et al. v. IRS, No.
3:24-cv-03259-X (N.D. Tex. Dec. 27, 2024).
20 See Nat’l Ass’n of Private Fund Managers
et al. v. SEC, No. 4:24-cv-00250 (N.D. Tex. Nov. 21, 2024);
Crypto Freedom All. of Tex. et al. v. SEC, No.
4:24-cv-00361 (N.D. Tex. Nov. 21, 2024).
21 See Van Loon v. Department of the Treasury,
No. 23-50669 (5th Cir. 2024).
22 Bitnomial Exch., LLC v. SEC, No.
1:24-cv-09904 (N.D. Ill. Oct. 10, 2024).
23 Ripple Labs, Inc., 682 F. Supp. 3d at 324 (S.D.N.Y.
July 13, 2023).
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