Interpreting the US SEC’s statement on PoW mining from the perspective of securities law — the qualitative process of cryptocurrency securities

This report will systematically sort out and analyze the policy implications, sort out the qualitative process of the securitization of cryptocurrencies, and point out the impact of this statement on cryptocurrency taxation, etc.

Author: Kaspa & FinTax

Cover: Photo by Pawel Czerwinski on Unsplash

introduction

On March 25, 2025, the U.S. Securities and Exchange Commission (SEC) issued a Statement on Certain Proof-of-Work Mining Activities. The statement states that crypto asset rewards obtained by providing computing power to participate in the proof-of-work mechanism on a public chain that does not require permission do not constitute securities issuance under the securities law. Although this statement itself does not have direct legal effect, its legal characterization and regulatory attitude mark an important shift in the SEC's path to digital asset regulation.

This change is happening against the backdrop of a reshaping of the US crypto regulatory environment. Since the Trump administration promoted a loose financial regulatory framework, US crypto asset policy has experienced a stage of "enforcement-driven priority". Between 2021 and 2023, the SEC launched intensive enforcement actions against multiple centralized platforms and ICO projects. Since 2023, as regulators have gradually clarified the boundaries between "security tokens" and "non-security native assets", the policy orientation is shifting from "comprehensive suppression" to "classification guidance and clear exemptions."

This statement on PoW protocol mining emerged under this trend, providing clear guidance on the compliance path for mining participants, mining pool operators and even the entire PoW ecological chain. This report will systematically sort out and analyze the policy connotation, sort out the qualitative process of cryptocurrency securitization, and point out the impact of this statement on cryptocurrency taxation.

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1. Interpretation of the Statement

The statement was issued by the SEC's Division of Corporation Finance to clarify whether certain types of mining activities conducted on public, permissionless PoW networks constitute the offer and sale of securities under Section 2(a)(1) of the Securities Act of 1933 and Section 3(a)(10) of the Securities Exchange Act of 1934. The statement points out that certain mining activities, especially those that provide computing power to participate in the consensus mechanism in PoW networks and receive protocol-level rewards, do not fall within the scope of securities issuance or trading. Specifically, the following two types of activities are explicitly exempted:

• Self/Solo Mining : Miners use their own computing resources to participate in transaction verification and block generation on the PoW network, and receive crypto asset rewards directly from the protocol;
• Mining Pool : Multiple miners combine their computing power to participate in mining, and distribute the agreement rewards according to the contribution ratio. Even if the mining pool is coordinated and managed by the operator, as long as the operating activities are "administrative" or "auxiliary", the nature of such activities will not be affected.

The statement further clarified that these "protocol mining activities" do not constitute securities because they do not meet the SEC's long-standing Howey test standards, especially the key element of "investment returns rely on the efforts of others." The premise for miners to receive rewards is to provide their own computing resources and abide by the rules of the technical protocol. This is active participation and technical labor, not passive profit based on the operating ability of a third party.

Therefore, the statement confirms that in the PoW network, the rewards obtained by miners or mining pools through autonomous mining are not securities and do not require registration or exemption procedures under the securities laws.

To understand this statement, we must grasp the following three key points:

• Limited legal effect, clear policy signal

As an official position document of the SEC's Corporate Finance Division, this statement does not have legal force, but it represents the regulatory authorities' law enforcement attitude and policy inclination in specific areas and has strong market guidance value.

• Substantially eliminate risks and explicitly exempt them from application

By excluding the securities attributes of specific PoW protocol mining activities, the statement defines a clear "compliance boundary" to help miners, mining pools, platforms and other participants identify which on-chain behaviors do not constitute securities issuance or transactions, thereby reducing potential legal risks.

• Understanding boundaries is clear and application conditions are strict

The statement only applies to the behavior of autonomously providing computing power to participate in the consensus mechanism in the permissionless PoW network, and the mining pool operation must maintain an administrative role. Any mining project that goes beyond this scope and involves fundraising, financial commitments or structural design may still be included in securities supervision.

Example: Kaspa

Under the framework of the non-securitization statement issued by the SEC on PoW mining behavior, Kaspa is a typical protocol public chain project that conforms to its exemption logic. The project does not conduct any form of pre-mining, pre-sale or team retention, but drives its fully open network operation through the proof-of-work mechanism (PoW), and the issuance of tokens is completely dependent on mining behavior under the control of protocol logic. Miners participate in consensus through computing power and can automatically obtain block rewards according to the protocol algorithm. They do not need to and cannot rely on the operational efforts of any team. Their related mining behavior meets all the elements of "non-securitization protocol behavior" in the SEC statement.

Moreover, as the world's first Layer-1 PoW chain using the BlockDAG (directed acyclic graph) structure, Kaspa's official website also has a unique presentation of the project's vision and technical advantages. Kaspa calls itself "the world's fastest, open source, decentralized and scalable" blockchain, supporting parallel block processing and instant confirmation while maintaining network security fully supported by proof of work. Its technical implementation can achieve block times in seconds and extremely high throughput, rather than relying on centralized sorting or sacrificing on-chain data integrity. At the project expression level, Kaspa did not emphasize any investment returns, token appreciation or financial expectations on the homepage, but instead focused on the protocol operation mechanism, open source participation methods, and on-chain expansion capabilities, fully reflecting the project positioning of "people-oriented" and "protocol-first".

2. Qualitative Path of Cryptocurrency Securities

Whether from the regulatory perspective of the U.S. Securities and Exchange Commission (SEC) or the Internal Revenue Service (IRS), cryptocurrencies are not always defined as securities under the current legal framework. However, regulators always reserve the right to enforce the securities characterization of specific crypto assets based on facts and structure.

The following is a summary of the development path of the securities classification of cryptocurrencies based on actual cases, starting with the US securities legislation:

➢U.S. Securities Legislation

The US securities legislation is a typical legislative system that separates the regulation of securities issuance and securities trading. In general, the US Securities Act of 1933 focuses on the issuance of securities, while the US Securities Exchange Act of 1934 focuses on the regulation of securities trading. The definition of securities is listed in Section 2(a)(1) of the Securities Act of 1933: A security is any note, stock, treasury stock, security future, security-based swap, bond, debt, debt certificate, interest certificate, or participation in any profit-sharing agreement... or any interest or instrument commonly referred to as a "security", or an interest or participation certificate, temporary or provisional certificate, receipt, guarantee, or subscription or purchase right for any of the above.

From an analytical perspective, securities under US law can be divided into three categories:

• Well-named securities : stocks, notes, bonds, options, etc.
• Instruments in specific economic sectors : mining rights, oil and gas rights, etc.
• Investment agreement : A catch-all clause. Whether an investment agreement is a security is determined by the court.

The U.S. Securities and Exchange Commission (SEC) is an independent, quasi-judicial agency established under the Securities Exchange Act of 1934 and directly under the U.S. federal government. It is responsible for securities supervision and management in the United States and is the highest regulatory agency in the U.S. securities industry. Its main responsibilities include protecting investors, maintaining fair, orderly and efficient markets, and promoting capital formation. It achieves these goals by formulating rules, enforcing laws and supervising securities market participants.

The emergence of the catch-all clause provides the SEC with a great deal of room for interpretation, allowing it to make purposeful and substantive interpretations of emerging new financial instruments. Today, nearly a hundred years later, securities laws also provide legal support for judicial decisions on the securitization of cryptocurrencies.

Cryptocurrencies and related activities have always been regulated under securities laws, even if their profit models do not resemble securities. The reasons are as follows:

• SEC's regulatory strategy has long been vague and conservative

The SEC shoulders the responsibility of protecting the interests of investors. In the field of crypto assets, it has always adopted a "broad regulation" approach: it would rather "include first and then judge" than easily exempt. In particular, as long as there are crypto assets + money flows + investor expected returns , the SEC will often give priority to applying the Howey test to determine whether it constitutes a security.

• Howey test leaves much room for interpretation

The Howey test originated from the 1946 Supreme Court case SEC v. Howey. The U.S. Supreme Court explicitly proposed using it to determine whether a transaction involves an "investment contract." It must meet the following four criteria to be considered a security: investment of money; investment into a common enterprise; reasonable expectation of profits; and the income depends mainly on the management of others. Certain mining activities may constitute securities issuance or investment contracts, especially the "sharing" mechanism of mining pool income.

• Mining pools, cloud mining, managed mining and other "edge scenarios" blur the boundaries

There used to be many "cloud computing power", "hosted mining", and "mining machine leasing" projects in the market: investors are only responsible for investment, while the purchase of mining machines and operation of equipment are the responsibility of the fund collector, and investors receive mining income regularly. The structure of this type of scenario is closer to securities, and the income depends on the management and operation of the project party. Various forms emerge in an endless stream, and it is impossible for the SEC to distinguish each form of mining one by one. Therefore, based on the principle of legal prudence, a unified and vague attitude is adopted: mining is high-risk and does not exclude securities attributes.

• Regulatory practices cannot keep up with the evolution of technology and organizational forms

The SEC regulates completely different new technologies based on the old legal framework (Securities Act of 1933 and Securities Exchange Act of 1934). The early crypto industry was relatively chaotic (fraud, running away), and in order to maintain industry stability and protect investors, comprehensive supervision was the only way.

Overall, as the cryptocurrency regulatory system continues to improve, regulators are also gradually clarifying the legal boundaries of various on-chain activities. This statement is one of the steps, laying the foundation for a clearer and more predictable compliance environment in the future. We have reason to believe that the investment and participation environment of crypto assets will continue to improve in a more transparent and orderly direction.

Evolution Path

In the previous article, we started from Section 2(a)(1) of the U.S. Securities Act of 1933 and combined with the case evolution of the Howey test to sort out the theoretical basis for why crypto assets and related behaviors are included in securities regulation. The following points can be summarized:

• Securities laws are at the core, and investment agreements are the bottom line, jointly responding to various emerging financial paradigms
• The Howey test is the core applicable tool, and the four elements become the general standard for determining whether an “investment contract” is constituted;
• The name and purpose of the token are not grounds for exemption. The focus is on investor expectations and actual structure. Projects with higher structural complexity and lower degree of decentralization are more likely to be considered securities. New forms such as mining, staking, and lending are gradually being included in the scope of “quasi-securities behavior”.
• The SEC's regulatory strategy tends to be cautious, with "broad application + case-by-case characterization" as its enforcement characteristics, and its regulatory attitude has shifted from vague unity to risk orientation and situational judgment.

Based on the above legal logic, we can more clearly review the SEC's regulatory practices on the securities attributes of cryptocurrencies in recent years. Through the analysis of several landmark cases, we can observe the SEC's "gradual evolutionary path" in regulatory strategy, from initial trial and broad application to gradually subdividing scenarios and introducing factors such as decentralization and investor types for situational judgment.

The following will combine actual cases to sort out the key evolution process of the characterization of crypto asset securities.

SEC v. Trendon Shavers (2013): First Bitcoin Securities Fraud Case

In 2013, the SEC sued an individual named Trendon Shavers, accusing him of securities fraud for operating the "Bitcoin Savings and Trust" (BST) project. This was the first securities case in U.S. history involving Bitcoin by the SEC. The court ultimately supported the SEC's position, believing that the Bitcoin investment plan constituted a securities offering.

BST claims to be a "high-yield Bitcoin investment plan". Trendon Shavers raised Bitcoin from the public and promised a fixed return of 1% per week, claiming that these Bitcoins would be used for arbitrage transactions and investors would receive dividends on a weekly basis. The project absorbed more than 700,000 BTC, but the subsequent funding chain was broken and a large number of investors suffered losses.

On September 18, 2014, the U.S. District Court in Sherman, Texas, entered a final judgment against Trenton T. Schaeffers and Bitcoin Savings Trust, Inc. (“BTCST”), an online entity Schaeffers created and used to conduct a Ponzi scheme through which he defrauded investors of more than 700,000 bitcoins. The judgment requires Schaeffers and BTCST to pay more than $40 million in disgorgement and prejudgment interest, and a civil penalty of $150,000 per defendant.

The SEC believes that although the investment asset is Bitcoin, the nature of this behavior is an "investment contract" and is a securities behavior. The court determined that: investors invested assets (BTC); funds were centrally managed by Shavers; investors expected to make a profit; and returns depended on Shavers' trading behavior (other people's efforts). Although the case did not involve "tokens" or "on-chain projects", it clearly released the SEC's attitude: " Even if the investment target is Bitcoin, it cannot be exempted from the application of securities laws; the key lies in the financing structure and profit logic. "

The DAO case (2017): The first time a cryptocurrency was deemed a security by the SEC

In 2017, the U.S. Securities and Exchange Commission (SEC) released an investigation report on The DAO project, clearly stating for the first time that tokens named "DAO" are "securities" and should be regulated by the Securities Act. Although the SEC did not file a law enforcement lawsuit against the project, this statement caused a huge response in the industry and was regarded as the starting point for the SEC to enter the regulation of crypto assets.

The DAO is a "decentralized autonomous organization" running on Ethereum. It has raised more than $150 million in ETH through "crowdfunding" for future investment in projects selected by community proposals. Investors exchange ETH for DAO and obtain the right to distribute profits and vote on governance. The project is essentially an on-chain "venture capital platform."

The SEC cited the classic Howey test, arguing that the DAO's sales behavior constituted an "investment contract": investors invested funds (ETH), which were concentrated in a common platform (The DAO) and expected to make profits through project investments under the governance of the DAO, while the return on investment depended on the management capabilities of the "curator" and the project initiator team. Although the DAO boasted of "decentralized governance", the SEC believed that actual control was still in the hands of specific technicians and curators, and investors did not really have control over the project operations. This case established for the first time the regulatory logic basis for "crypto tokens can constitute securities."

Munchee (2017): Utility Tokens Do Not Equal Automatic Compliance

Munchee is a food review app platform that planned to issue MUN in 2017 for internal rewards and user incentives. The SEC quickly intervened and stopped its ICO, and determined that its token issuance constituted securities behavior.

Munchee claims that MUN is a "utility token" that can be used for internal payments and incentives in the App and does not have investment attributes. However, the project has extensively promoted the token's appreciation potential and investment returns through social media and promotional materials, attracting a large number of investors to participate in speculation.

The SEC pointed out that although the token is technically "functional", the project party guided users to generate investment expectations through publicity, which is a key link in the Howey test. Investors buy MUN not for consumption or use, but expect to gain capital appreciation as the platform develops, users grow and scarcity increases. In addition, the operation of the project is entirely dependent on the efforts of the Munchee team, so the investment behavior depends on the operating ability of others and constitutes an "investment contract." The SEC emphasizes that even if the project itself has technical functions, as long as there is an obvious financing logic and profit expectations, it may still be characterized as a security.

BitClub Network Case (2019): Illegal Securities and Fraud in the Name of “Cloud Mining”

In December 2019, the U.S. Department of Justice (DOJ) and the IRS announced the crackdown of a global crypto mining investment project called "BitClub Network". The project has been raising funds from global investors in the name of "computing power sharing" since 2014, accumulating more than US$700 million in funds, and was later found to be a Ponzi scheme. The core personnel of the project were criminally prosecuted for securities fraud, wire fraud and money laundering.

BitClub Network claims to provide users with "cloud mining" services. Investors can invest in mining machine shares or computing power contracts, and the platform promises to distribute dividends regularly based on mining income. The platform is open to retail investors, has no regulatory license, and does not disclose the actual computing power. After the funds flow into the project party, they are basically not used for actual mining, but are used to pay early investors and diverted for other purposes.

Although the case was led by the Department of Justice, its core illegal logic is still closely related to securities law. BitClub Network promised investors stable mining income . Investors only need to invest and do not need to participate in mining itself. The return depends on the platform's "mining operation" - this obviously meets the four elements of the Howey test: investing money; investing in a common "mining pool"; having a clear return expectation; and the profit obtained depends entirely on the efforts of the project party.

In addition, the project's promotional materials, distribution system and fund operation methods are very similar to illegal fundraising and securities fraud. In the end, the case was handled as one of the few criminal-level "mining fraud securities cases" in the crypto field, and the verdict had a significant deterrent effect.

Ripple Labs Case (2020–2025): The “Gray Area” in Securities Qualification

Since 2020, the SEC has filed a lawsuit against Ripple Labs, accusing it of raising funds from the public through the continuous sale of XRP, which constitutes an unregistered securities offering. The case has become one of the most controversial and far-reaching crypto lawsuits in U.S. history. In 2023, the court initially ruled that XRP sold directly to institutional investors constitutes a security, but transactions between retail investors in the secondary market do not constitute a security.

Ripple, a company that provides cross-border payment solutions, has long raised funds for its operations by selling XRP to institutional investors and the general public. The U.S. Securities and Exchange Commission (SEC) alleges that these sales constitute "investment contracts" as defined under the Howey Test, on the grounds that investors are believed to expect to profit from Ripple's efforts to promote the development of the XRP ecosystem.

The court recognized some of the points in the allegation. In 2023, the court ruled that institutional investors had reasonable grounds to expect that their profits would come from Ripple's efforts, and therefore met all the requirements of the Howey Test. As for programmatic buyers in the secondary market (referring to retail investors who purchase XRP through exchanges, etc.), the court held that due to the economic substance of the transaction itself, such transactions did not meet the third requirement of the Howey Test - "expectation of profits". The judgment opinion stated:

“Having considered the economic reality of the Programmatic Sales, the Court concludes that the undisputed record does not establish the third Howey prong.”

“Programmatic Buyers could not reasonably expect the same [profits],” because these blind bid/ask transactions made it unclear whether funds went to Ripple at all (Case No. 1:20-cv-10832-AT-SN, Document 874, p.23).

This context-based approach — considering who the investors are and how the transactions are conducted — is a departure from the broad regulatory approach the SEC has long taken toward crypto-asset offerings. As the court confirmed in its ruling, not all sales of digital assets automatically constitute securities transactions.

After that, the SEC appealed, and after another long trial period, Ripple reached a settlement agreement with the SEC according to Litigation Release No. 26306 issued by the SEC on May 8, 2025. Ripple agreed to pay $50 million of the original $125 million civil penalty, and the remaining $75 million will be returned to Ripple from the escrow account. Both parties agreed not to file further appeals or seek to revoke the previous court ruling.

BlockFi case (2022): Structured crypto financial products trigger securities regulation

In 2022, the SEC filed an enforcement action against the crypto financial platform BlockFi, arguing that its "BlockFi Interest Account" (BIA) was essentially an unregistered securities product. In the end, BlockFi reached a settlement with the SEC, paying a $100 million fine and adjusting its business structure.

BlockFi provides a crypto deposit product where users can deposit cryptocurrencies such as BTC and ETH and receive annualized returns. BlockFi promises that these assets will be used for loans or investments, and the generated returns will be returned to users. Although the platform does not issue cryptocurrencies, this product form actually forms a structure similar to a "wealth management agreement."

The SEC believes that BIA accounts constitute an "investment contract" under the Howey test: users deposit cryptocurrencies, and the funds are centrally handed over to the platform for unified operation. Users themselves do not participate in management, but rely on BlockFi to make profits through reinvestment and expect to get returns. Although this is not a "securities issuance" in the traditional sense, its income structure, benefit logic, and operating methods are highly similar to securities. This case made it clear for the first time that even if a crypto product does not involve cryptocurrencies, it can also constitute a security as long as it meets the elements of an investment contract.

ETH/ETF Regulatory Controversy (2024): The Compliance Turn for Decentralized Assets

In 2024, the market strongly promoted the landing of Ethereum spot ETF, which triggered another discussion among regulators on whether Ethereum (ETH) is a security. Although there has been no formal ruling, the SEC has shown a preference for viewing ETH as a "commodity" rather than a security.

ETH is the second largest crypto asset in the world by market value. Since its launch in 2015, its network has gradually decentralized, switching from PoW to PoS, and its technical level and governance structure are closer to native financial infrastructure. After 2023, the SEC's regulatory attitude towards ETH has gradually turned moderate, and the CFTC has long regarded it as a "commodity."

Although Ethereum issued ETH through fundraising in the early stage, which has some characteristics of securities, over time, its operation no longer relies on any centralized organization, and there is no clear operator to promote its value growth. The SEC gradually accepts that "decentralization" is the key to eliminating the "efforts of others" element in the Howey test . During the ETF review process, the SEC did not characterize ETH as a security, nor did it prevent the issuance of its derivatives. This case shows that for native on-chain assets, the degree of decentralization will become one of the core indicators for the qualitative identification of securities in the future .

Through the analysis of the above seven typical cases, we can see how US regulators gradually build the practical logic of qualitative crypto asset securities from different stages, different asset types and different regulatory results. These cases reflect the SEC’s views on the application of securities law, and also reflect that its regulatory focus has gradually shifted from “whether it is a token” to “whether it has the attributes of an investment contract”.

Figure 1 below will systematically outline the securities characterization process of cryptocurrencies (including mining, financing, various activity paradigms, etc.), including stage summaries, typical cases, and relevant regulations.

Since Bitcoin was first included in the regulatory field in 2013, the road to securities characterization of crypto assets in the United States has gone through four key stages: from traditional regulatory exploration → systematic law enforcement → classified supervision → detailed exemption. In the past decade, regulators have continuously built a substantive judgment framework based on investment contract judgment (Howey test) through judgments and policy statements of typical cases. Cryptocurrencies (such as Bitcoin) are basically excluded from securities due to their important characteristic of decentralization.

The representative regulations and cases of each year not only reflect the evolution of regulatory tools from vague to clear, but also reveal that the SEC's attitude towards "whether cryptocurrency is a security" has gradually transitioned from "broadly applicable" to "risk-oriented" and "situational judgment". Entering 2024-2025, with the implementation of Trump's cryptocurrency-friendly policies, ETH, PoW mining and other fields are clearly excluded from securities supervision, and the future regulatory trend is moving towards standardization of rules and clear boundaries.

3. Tax implications of this statement

Although the SEC explicitly excluded “protocol-level mining activities” from the definition of securities in the statement, providing clear compliance boundaries for miners and mining pool operators, this does not mean that mining activities are exempt from tax responsibilities.

The SEC is responsible for securities regulation, while the tax regulatory body is the IRS (Internal Revenue Service). The judgment logic and enforcement objectives of the two are different. The IRS has never regarded mining income as "securities investment income" . As early as 2014, the IRS clearly stated that cryptocurrency "mining income" should be regarded as taxable income and must be included in the total income according to its "fair market value at the time of acquisition". Subsequent sales of capital gains must pay capital gains tax (short-term or long-term). In other words, even if the statement exempts mining from the securities attribute, miners still have the obligation to report taxes when they receive mining rewards.

In practical terms, this means:

• Regardless of Solo Mining or Pool Mining, the tokens obtained should be declared as income;
• For miners, they need to calculate the dollar value of the currency when they are obtained and declare it during annual tax payment;
• Costs (eg, electricity, equipment) may be deductible, but must meet operational standards outlined by the IRS.

It is important to note that since this statement confirms that mining activities are not securities issuance, it also excludes the path of circumventing reporting through the securities exemption mechanism. Instead, the tax responsibility is more independent and falls directly on the miners or mining pool operators themselves. Although this statement alleviates the concerns of miners at the securities law level, it also means that they must more strictly fulfill their tax reporting obligations related to the IRS. In the context of compliance becoming more refined, "not a security" does not mean "no responsibility", but should prompt the miner group to re-examine their tax obligations and risks.

4. Conclusion

In short, although the PoW mining statement released by the SEC is not a legislative document, it is an important coordinate for the evolution of regulatory logic. It sends a clear signal: US regulators are gradually accepting that "native on-chain behavior" does not have to fall naturally into the category of securities, and the market is evolving towards a "clear, regularized, and predictable" compliance environment. Under this trend, whether it is miners, platforms, developers, or investors, they should pay attention to the matching relationship between structural design, operational positioning, and information disclosure, and actively adapt to the reshaping of compliance paths.

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