Community banks warn of deposit migration, while investor advocates challenge the agency's authority to loosen securities requirements for digital assets..

US banks warned that proposed SEC crypto exemptions could drain deposits as investment managers pushed for broader access to digital assets.

The competing demands emerged as the Securities and Exchange Commission's (SEC) Oct. 20 comment deadline for its proposed Regulation Crypto Assets expired, exposing divisions over how far regulators should go in easing restrictions on cryptocurrency fundraising and investment.

The proposal, published Aug. 21, would allow qualifying crypto projects to 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 subject to disclosure requirements and federal antifraud provisions.

It would also establish a conditional safe harbor allowing crypto assets to cease being subject to investment contracts once issuers complete or permanently abandon promised essential managerial work and file a transition report with the SEC.

Submissions from Bitwise, Nasdaq, the Alternative Investment Management Association, community banks and investor advocates reveal competing priorities that could shape the final regulations.

Asset manager Bitwise wants the SEC to make it easier for investment firms to determine which cryptocurrencies they can hold in exchange-traded products, indexes and private funds.

In its Oct. 19 letter, Bitwise said fund sponsors currently face substantial uncertainty when assessing whether a token remains subject to an investment contract.

The firm wants asset managers to rely on issuers' public transition reports after an SEC review period expires without a challenge.

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