By Bitwise Asset Management and the Hyperliquid Policy Center have urged the US Securities and Exchange Commission (SEC) to revise its proposed cryptocurrency rules, exposing disagreements over token classification, issuer disclosures and secondary-market trading as the public comment period closed on October 20.In separate October 19 submissions, both organizations supported greater regulatory certainty but proposed different approaches to determining when tokens are no longer associated with securities investment contracts. Their recommendations also contrasted with an October 16 letter from former SEC enforcement official John Reed Stark and Duke University finance scholar Lee Reiners, who called for the proposal’s withdrawal.
The SEC’s Regulation Crypto Assets, proposed in August, would establish two registration exemptions: up to $5 million in fundraising over four years and up to $75 million within any 12-month period. It would also introduce a conditional safe harbor allowing qualifying investment contracts associated with crypto assets to cease being treated as securities.
Why Does Bitwise Want Clearer Rules for Token Classification?
Bitwise argued that asset managers need objective standards for determining whether cryptocurrencies can be included in investment products without creating excessive securities-law exposure.
Unlike token issuers, investment managers frequently rely on information published by third parties. Bitwise said its existing due diligence requires evaluating whether an asset carries an undue risk of being classified as a security, a process that can demand substantial legal resources.
The firm proposed allowing managers to rely on an issuer’s Form TR, a proposed filing certifying that the relevant investment contract has ceased to exist, provided the SEC has not challenged the filing within a specified review period.
When no Form TR exists, managers should be able to make reasonable determinations using publicly available information, Bitwise argued.
The firm also wants issuers to provide supporting analysis explaining how they satisfied the conditions for ending an investment contract, rather than submitting unsupported certifications.
For cryptocurrency exchange-traded products, these distinctions have practical consequences. Uncertainty surrounding an underlying token’s legal treatment can affect fund eligibility, compliance expenses and potentially continued product operations.
Investor Takeaway
A standardized classification and reliance framework could lower legal costs for crypto investment managers and reduce uncertainty around fund holdings. However, reliance protections would not eliminate regulatory challenges where an issuer’s representations prove inaccurate.
What Does Hyperliquid Want Changed for Airdrops and Trading?
The Hyperliquid Policy Center focused on whether the proposed framework would accommodate decentralized networks and the trading infrastructure supporting them.
Its submission argued that qualifying airdrops rewarding participation in functional blockchain networks should not automatically constitute investment contracts merely because users performed activities before receiving tokens.
The organization also requested clearer distinctions between programmatic token buybacks, conducted according to predetermined rules, and discretionary repurchases controlled by project operators.
More importantly for trading venues, the group warned that the proposal does not adequately resolve how tokens issued under fundraising exemptions can trade through unregistered intermediaries or decentralized protocols.
It recommended explicit treatment of secondary-market transactions and potential exemptions for qualifying intermediaries under federal securities laws.
As FinanceFeeds previously reported, the organization submitted five recommendations covering airdrops, secondary trading, safe-harbor access, buybacks and federal preemption of certain state requirements.
Where Do Bitwise and Hyperliquid Disagree on Issuer Disclosures?
Although both organizations support improving the proposed Form TR mechanism, their submissions reveal an important disagreement about transparency.
Bitwise wants issuers to publish sufficiently detailed supporting analysis so investment managers can independently evaluate whether the conditions for ending an investment contract have been satisfied.
The Hyperliquid Policy Center takes a different approach, arguing that mandatory public analysis could expose developers to litigation by requiring them to document historical representations and promises.
It proposed allowing issuers to certify compliance without publishing that analysis, or alternatively submit supporting material confidentially to SEC staff.
This creates a regulatory trade-off between making the safe harbor accessible to developers and giving investors sufficient information to evaluate issuers’ claims.
Investor Takeaway
Reduced disclosure requirements could encourage more issuers to use the safe harbor, but may leave fund managers and trading venues with less information to assess legal risks. The SEC’s final treatment of Form TR could influence institutional willingness to support additional tokens.
Could Investor Protection Objections Delay the SEC’s Crypto Rules?
Stark and Reiners went further than requesting amendments, arguing that the SEC lacks sufficient statutory authority to establish the proposed exemptions and that its framework would weaken established investor protections.
Their October 16 letter criticized the possibility of issuers effectively certifying their way out of securities oversight. They maintained that existing securities legislation and judicial precedent already provide the appropriate framework for investment contracts.
They also warned that adopting substantially similar rules could trigger immediate litigation challenging the SEC’s authority.
The disagreement adds another complication to a framework that FinanceFeeds examined when the proposal was published in August, particularly its attempt to distinguish token-related investment contracts from the underlying crypto assets.
The October 20 consultation deadline has now passed, but the SEC has not announced a timetable for adopting a final rule.
The commission must evaluate the submissions before deciding whether to revise, adopt or withdraw its proposal. Any adoption would require further commission action, and the proposed exemptions and safe harbor are not currently in force.
Investor Takeaway
The immediate issue for investors is not whether the SEC will provide crypto exemptions, but which provisions would survive revision and possible judicial review. Until a final legally effective framework emerges, token issuers, asset managers and trading platforms must continue operating under existing securities-law requirements.