Original | Odaily Planet Daily

Author | jk

On March 20, 2025, local time in the United States, the Securities and Exchange Commission (SEC) issued a statement, clarifying that cryptocurrency mining activities based on the Proof-of-Work (PoW) mechanism do not constitute the issuance or sale of securities and therefore do not need to be registered under the Securities Act. This statement may provide a legal basis for the future approval of ETFs for PoW tokens (such as Litecoin), reducing compliance barriers.

SEC: PoW Mining Not Subject to Securities Law Regulation

The SEC's Division of Corporation Finance pointed out in its March 20 statement that PoW mining, including Self or Solo Mining and Mining Pool, does not meet the definition of "securities" under the Securities Act of 1933 and the Securities Exchange Act of 1934, and therefore does not require registration.

This determination covers two main types of PoW mining:

• Self or Solo Mining — Miners use their own computing resources to mine and receive rewards according to the protocol rules.

• Mining Pool — Miners share computing power to increase the success rate of mining and receive rewards based on their contribution ratio.

According to the statement, "protocol mining" is defined as participating in the consensus mechanism of a public permissionless network by contributing computing resources, thereby earning rewards in the form of crypto assets generated by the network protocol (Covered Crypto Assets). The SEC emphasizes that whether through solo mining or joining a mining pool, the rewards obtained by miners come from their own computing resource contributions, rather than "relying on the management or operational efforts of others."

Howey Test: PoW Mining Rewards Do Not Constitute "Investment Contracts"

The SEC's analysis is based on the Howey Test, which determines whether a financial activity constitutes an investment contract for securities. The Howey Test requires that the following conditions be met: the investor invests money, and the reasonable expectation of profits relies on the efforts of others.

The SEC explicitly stated in the announcement that the earnings of PoW miners come from their own computing power contributions, rather than from the actions of third parties, and therefore do not meet the definition of "investment contracts."

Even if miners join a mining pool, the SEC believes that miners are still competing for rewards through their own computing resources, rather than relying on the management of the pool operator, and thus do not fall under securities trading:

When miners combine their computing resources with those of other miners to increase the chances of successfully mining new blocks on the network, they do not expect their profits to come from the business management or operational efforts of others. By adding their computing resources to the pool, miners are merely performing an administrative or ministerial activity to maintain network security, verify transactions, add new blocks, and earn rewards. Furthermore, any expectation of profits by miners does not stem from the efforts of third parties (such as pool operators). Even when participating in mining pools, individual miners still solve cryptographic puzzles to verify new blocks by contributing computing power.

Additionally, whether miners are engaged in solo mining or as members of a mining pool, this does not change the nature of protocol mining under the analysis framework of the Howey Test. In the scenarios described in this statement, protocol mining remains an administrative or ministerial activity. At the same time, the primary responsibilities of pool operators in utilizing the computing resources of participating miners to operate the pool are also administrative or ministerial.

Although certain activities of pool operators may benefit the group of miners, these efforts are insufficient to meet the Howey Test's requirement regarding "the efforts of others," as miners primarily rely on their own computing resources and those provided by other pool members to earn profits. Therefore, miners join pools not based on the expectation of passively profiting from the activities of pool operators.

The SEC believes that the role of pool operators is primarily "administrative or ministerial," rather than investment management. Even if operators coordinate miners' computing power, manage hardware, and allocate rewards, these actions are insufficient to satisfy the core element of "the efforts of others" in the Howey Test.

In other words, the SEC believes that maintaining the network and earning rewards comes from "the efforts of computing power and automated programs," rather than "the efforts of others." Miners and pool managers are merely providing computing power or management services. It is akin to a programmer developing an automated program and selling it to others, charging a subscription fee, which is different from investing in a company developing the program and receiving interest regularly; the former is considered a service fee, while the latter is regarded as a security. Therefore, the SEC determines that PoW mining is unrelated to the regulatory requirements of securities law.

What Would Happen If Mining Activities Were Considered Securities?

If mining activities were considered securities, we would see a series of negative impacts:

First, miners might need to register with the SEC and comply with securities regulations. Under the Securities Act of 1933, any activity involving the issuance of securities must be registered or meet specific exemption conditions. If mining is deemed a securities issuance, all miners (whether individual miners or pools) may be required to register with the SEC, submit regular financial reports, and undergo stricter compliance reviews. This would not only significantly increase the operational costs for miners but could also lead to small miners exiting the market due to an inability to meet compliance requirements, further exacerbating the centralization trend in mining.

Second, exchanges may not be able to freely list PoW tokens. If mining rewards (such as Bitcoin and Litecoin) are viewed by the SEC as securities, then any trading platform involved with these assets may be required to register as a securities exchange or alternative trading system (ATS). This would significantly impact the operational models of existing crypto exchanges, potentially forcing them to delist PoW tokens or strictly limit the identities of trading users (e.g., only allowing accredited investors to participate).

Additionally, the participation of institutional investors may be restricted. Currently, the approval of Bitcoin ETFs has provided a compliant pathway for institutional investors to enter the crypto market. However, if PoW mining is defined as securities trading, this could affect the legality of existing ETFs and make future applications for PoW token-based ETFs (such as Litecoin) more difficult.

These difficulties, however, are clearly no longer a concern following the SEC's statement.

Potentially Paving the Way for PoW Cryptocurrency ETF Approval

The SEC's clarification that PoW mining does not constitute securities issuance may pave the way for future PoW cryptocurrency ETFs (such as Litecoin ETFs). Previously, the SEC had approved Bitcoin spot ETFs but had not yet approved spot ETFs for other PoW tokens (such as Litecoin).

The SEC's clear distinction between the regulatory logic of PoW and PoS may suggest its special positioning of PoW networks — "miner rewards are service compensation, not investment contract returns."

Litecoin (LTC) is one of the most representative PoW tokens, utilizing a PoW mechanism similar to Bitcoin. Since the SEC's statement excludes the securities attributes of PoW mining, this means that the legal uncertainty surrounding PoW assets like Litecoin is reduced, providing a clearer regulatory basis for ETF approvals. Market analysts believe that the SEC's statement may indicate a better outlook for the approval of Litecoin ETFs and other PoW token ETFs.

Once PoW token ETFs are approved, institutional investors will be able to invest in PoW crypto assets through compliant channels, further promoting market liquidity and maturity.

Currently, the market is closely monitoring the SEC's subsequent actions, particularly whether it will take a more proactive stance on ETF applications for PoW assets. If Litecoin and other PoW token ETFs are successfully approved, it will signify further clarification of the SEC's regulatory framework for PoW crypto assets and may encourage more traditional financial institutions to enter the crypto market. Odaily will continue to report on this.

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