Original｜Odaily Planet Daily
Author: jk
On March 20, 2025, local time in the United States, the U.S. 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 in accordance with the Securities Act. This statement may provide a legal basis for the approval of future ETFs for PoW tokens (such as Litecoin) and reduce compliance barriers.
SEC: PoW mining does not involve securities law regulation
The SEC’s Division of Corporation Finance stated in a statement on March 20 that PoW mining, including self or solo mining and mining pool mining, does not meet the definition of “security” under the Securities Act of 1933 and the Securities Exchange Act of 1934, and therefore does not require registration.
This designation 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 increase the success rate of mining by sharing computing power and receive rewards according to 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, and thereby obtaining crypto assets generated by the network protocol (Covered Crypto Assets). The SEC emphasized that whether mining independently or joining a mining pool, the rewards miners receive come from their own computing resource contributions, rather than relying on the management or operation of others.
Howey Test: PoW Mining Rewards Are Not “Investment Contracts”
The SECs analysis is based on the Howey Test, which determines whether a financial activity constitutes an investment contract in a security. The Howey Test requires that the investor invests money and has a reasonable expectation of profits that rely on the management or operating efforts of others.
The SEC clearly pointed out in its statement that the income of PoW miners comes from their own computing power contribution, not the business operations of a third party, and therefore does not meet the definition of an investment contract.
Even if miners join a mining pool, the SEC believes that miners still strive for rewards through their own computing resources rather than relying on the management of the mining pool operator, so it does not constitute securities trading:
When a miner combines his computing resources with other miners to increase the chances of successfully mining a new block on the network, the miner does not expect his profits to come from the corporate management or management efforts of others. By adding his own computing resources to the mining pool, the miner is simply performing an administrative or transactional activity to maintain network security, verify transactions, add new blocks, and obtain rewards. In addition, any expectation of profit by the miner does not come from the efforts of a third party (such as the mining pool operator). Even when participating in mining pools, individual miners still contribute computing power to solve cryptographic puzzles to verify new blocks.
Furthermore, whether a miner mines independently (or individually) or as a member of a mining pool, this does not change the nature of protocol mining under the analytical framework of the Howey test. Protocol mining is still an administrative or transactional activity in the circumstances described in this statement. At the same time, the primary duties of a mining pool operator when operating a mining pool using the computing resources of participating miners are also administrative or transactional.
Although some activities of mining pool operators may benefit the mining community, these efforts are insufficient to satisfy the “efforts of others” requirement of the Howey test, since miners primarily rely on the computing resources they provide together with other pool members to make a profit. Therefore, miners do not join mining pools based on the expectation of being able to passively profit from the activities of mining pool operators.
The SEC believes that the role of mining pool operators is primarily “administrative or ministerial” rather than investment management. Even if the operator coordinates miners’ computing power, manages hardware, and distributes rewards, these actions are not sufficient to meet the core element of “efforts of others” in the Howey test.
In other words, the SEC believes that maintaining the network and obtaining rewards come from computing power and automated program efforts rather than other peoples efforts, and miners and mining pool managers only provide computing power or management services. Its like a programmer develops an automated program and sells it to others, charging regular subscription fees. This is different from investing in a company that develops the program and collecting regular interest. The former is considered a service charge, while the latter is considered a security. Therefore, the SEC believes that PoW mining has nothing to do with the regulatory requirements of securities laws.
What are the consequences if mining is considered securities?
If mining is considered a security, we will see a series of negatives:
First, miners may 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 certain exemptions. If mining is considered a securities offering, then all miners (whether individual miners or mining pools) may be required to register with the SEC, submit regular financial reports, and undergo stricter compliance reviews. This will not only greatly increase the operating costs of miners , but may also cause small miners to exit the market due to their inability to meet compliance requirements, further exacerbating the trend of mining centralization.
Secondly, exchanges may not be able to list PoW tokens freely. If mining rewards (such as Bitcoin and Litecoin) are considered securities by the SEC, then any trading platform involving these assets may be required to register as a securities exchange or alternative trading system (ATS) . This will significantly affect the operating model of existing crypto exchanges, possibly forcing them to delist PoW tokens or strictly restrict the identity of trading users (such as only qualified investors can participate).
In addition, the participation of institutional investors may be limited. Currently, the approval of Bitcoin ETFs has provided a compliant path for institutional investors to enter the crypto market. However, if PoW mining is defined as securities trading, this may affect the legality of existing ETFs and make it more difficult to apply for future ETFs based on PoW tokens (such as Litecoin).
And these difficulties obviously no longer exist after the SEC’s statement.
Or pave the way for PoW cryptocurrency ETF approval
The SEC’s clarification that PoW mining does not constitute a securities offering may pave the way for future PoW cryptocurrency ETFs (such as Litecoin ETFs). Previously, the SEC has approved Bitcoin spot ETFs, but has not yet approved spot ETFs for other PoW tokens (such as Litecoin, etc.).
The SECs clear distinction between the regulatory logic of PoW and PoS may hint at its special positioning of the PoW network - miner rewards are service remuneration, not investment contract income .
Litecoin (LTC) is one of the most representative PoW tokens, and its network uses a PoW mechanism similar to Bitcoin. Since the SEC excluded the securities attributes of PoW mining in its statement, it means that the legal uncertainty of PoW assets such as Litecoin is reduced, providing a clearer regulatory basis for ETF approval. Market analysts believe that this statement by the SEC may indicate that the approval prospects of Litecoin ETF and other PoW token ETFs will further improve.
Once the PoW token ETF is 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 watching the SECs follow-up actions, especially whether it will take a more positive attitude towards ETF applications for PoW assets. If Litecoin and other PoW token ETFs are successfully approved, it will mark the SECs further clarification of the regulatory framework for PoW crypto assets and may drive more traditional financial institutions to enter the crypto market. Odaily will continue to report for you.
