SEC crypto fundraising plan draws bank warnings and legal threats
US community banks warned that the Securities and Exchange Commission's proposed exemptions for cryptocurrency fundraising could pull deposits away from smaller lenders, as the regulator's comment period on the plan closed on 20 October.
The proposal, published on 21 August, would let qualifying crypto projects raise up to $5 million over four years or $75 million annually without registering their investment-contract offerings under the Securities Act. Issuers would remain bound by disclosure requirements and federal antifraud provisions. It would also create a conditional safe harbour allowing crypto assets to stop being treated as investment contracts once issuers complete or permanently abandon promised essential managerial work and file a transition report with the SEC.
The Independent Community Bankers of America said easier crypto issuance could accelerate stablecoin adoption and divert deposits from smaller banks. It cited an earlier modelled scenario in which stablecoin incentives could shift as much as $1.3 trillion from community banks and cut lending capacity by approximately $850 billion, while acknowledging those estimates concern potential stablecoin growth rather than the direct effect of the SEC proposal. The association asked for a supplemental economic analysis, tighter eligibility thresholds, monitoring of deposit migration and authority to suspend the exemptions if material risks emerge.
Asset manager Bitwise, in a 19 October letter, asked the SEC to let fund sponsors rely on issuers' public transition reports once a review period expires without challenge, and to protect good-faith reliance if regulators later dispute a classification. The Alternative Investment Management Association sought to extend the safe harbour to investment adviser and fund rules, with clearer custody and resale protections. Nasdaq endorsed the framework but urged the SEC to exclude tokenised stocks, bonds and ETF shares from the exemptions, arguing that tokenised versions of traditional securities must keep existing registration, disclosure and trading requirements. The Hyperliquid Policy Center also asked for protection while crypto projects remain under development, rather than requiring issuers to complete or abandon promised work first.
Opposition was sharper elsewhere. Public Citizen urged the SEC to abandon the proposal and resume crypto enforcement, while former SEC enforcement official John Reed Stark and Duke researcher Lee Reiners separately demanded its withdrawal, arguing the agency lacks statutory authority to create the exemptions. They warned that a final rule resembling the current proposal would face an immediate legal challenge. The SEC must now decide whether to revise the thresholds, strengthen disclosures or commission further analysis before adopting final rules.
