Passive Interest in Cryptocurrency Regulation: SEC's Response to Ripple Concerns

Debate over how passive interest should be treated within the cryptocurrency regulatory framework has become a primary focus of the U.S. Securities and Exchange Commission (SEC). This issue is not just about technical terminology but about how digital assets will be regulated in the future. Recent developments indicate that the crypto industry is at a pivotal turning point in its interactions with federal regulatory agencies.

What Is Meant by Passive Interest in the Context of Securities?

Digital asset regulatory attorney Teresa Goody Guillen has submitted a significant public comment to the SEC, outlining her perspective on passive interest in the cryptocurrency regulation debate. According to her analysis, merely holding passive economic interests—such as buying tokens with the expectation that their value will increase—should not automatically categorize the asset as a security under federal law.

Guillen argues that the current approach has incorrectly equated speculative activity with traditional investment rights. She proposes implementing a more comprehensive evaluation framework, using a tiered approach to assess each digital asset individually. This reflects an acknowledgment that cryptocurrencies possess unique characteristics that cannot always be mapped onto existing regulatory categories.

Ripple’s Position and Regulatory Response

Ripple, the company behind the cryptocurrency XRP, has become a leading voice raising concerns about the overly broad regulatory framework. In early January, Ripple filed a formal petition emphasizing that the concept of “decentralization” should not serve as a strict legal benchmark in determining security status.

More specifically, Ripple questions the logic that equates passive interest with formal investment rights. The company argues that the decision to purchase tokens solely based on expectations of price appreciation constitutes speculation, not a legal investment under securities law. Ripple’s position is implicitly supported by Guillen, although the SEC attorney’s notes are not intended to establish official policy or bind the agency.

New Regulatory Framework: Digital Value Instruments

In a separate but related development, Guillen also released a draft discussion paper for the “Digital Market Restructuring Act 2026.” It is important to note that this proposal has not yet received formal approval from SEC leadership or the Commodity Futures Trading Commission (CFTC), and remains a topic for public discussion.

The draft proposes a new classification system called “Digital Value Instruments” for assets that do not fit into existing regulatory categories such as securities or commodities. According to the proposal, an asset would be classified as a Digital Value Instrument if it exhibits at least three of the following five characteristics: the ability to be freely transferred, providing passive or economic interest to holders, limited contractual rights, systemic dependence on a corporate entity or protocol sponsor, or the lack of mechanisms to discipline or replace system components that affect its value or operation.

This framework also suggests dividing authority based on risk profiles between the SEC and CFTC, federal preemption to prevent conflicting state laws, and the provision of safe harbors to encourage innovation in the sector. This approach indicates an effort to create a regulatory ecosystem better aligned with the unique characteristics of the digital market.

Future Developments and Implementation Challenges

This formal submission comes ahead of a scheduled SEC-CFTC coordination meeting to discuss aligning regulatory approaches to digital assets. Originally planned for last Tuesday, the meeting was postponed by two days and will include informal discussions with SEC Chair Paul Atkins and CFTC Chair Mike Selig on how to harmonize their jurisdictions and standards.

Administrative hurdles have also emerged at the legislative level. The U.S. Senate Agriculture Committee has delayed signing the crypto market structure bill due to extreme weather conditions affecting the United States, demonstrating that the regulatory process is unfolding amid various operational challenges. Despite the delay, the urgency to establish a clear framework for how passive interest is treated within the crypto ecosystem remains a priority for policymakers and industry players.