California and the United States Securities and Exchange Commission (SEC) have erupted into a fierce conflict over regulatory jurisdiction concerning cryptocurrencies, with Kevin Helms revealing this core disagreement on October 25, 2026.
California officials are firmly resisting the SEC's proposal aimed at loosening financing restrictions, arguing that it seeks to use federal-level exemption clauses to override state regulators' review authority over high-risk financial products, thereby severely weakening substantive investor protection.
This battle is not merely about the redistribution of regulatory power, but directly touches upon each state's statutory authority to conduct risk screening before products are sold, marking yet another head-on confrontation between local protectionism and federal unified market rules.
The regulatory contest centers on the specific exemption clauses proposed by the SEC and the firm response from California's Department of Financial Protection and Innovation.
The state regulator formally submitted a comment letter to the SEC on October 20, explicitly opposing the proposal that could strip investors of protective measures against high-risk cryptocurrency products.
KC Mohseni, Commissioner of the California Department of Financial Protection and Innovation, emphasized in the letter that while California supports innovation and entrepreneurs driving innovative development, it will never accept federal regulators attempting to bypass state regulatory powers and protections while abandoning their own supervisory responsibilities.
The SEC proposal sets two types of financing limits: qualifying issuers can raise up to $5 million over four years through a startup exemption clause, while a separate dedicated cryptocurrency financing exemption allows them to raise up to $75 million within any 12-month period.
Regardless of which pathway is used, issuers must provide written disclosures detailing the project, associated risks, and other information investors need to evaluate the product.
Under the cryptocurrency issuance framework proposed by the SEC, products issued through financing pathways must also submit financial statements and maintain ongoing information disclosure, with federal anti-fraud laws continuing to apply.
SEC Chairman Paul Atkins proposed establishing targeted cryptocurrency exemption clauses aimed at attracting more issuers to conduct financing activities in the United States.
Additionally, a conditional safe harbor mechanism allows a cryptocurrency to no longer be subject to investment contract constraints when specific legal conditions are met, including completing or permanently terminating the essential work that investors expect to generate profits through managerial efforts.
However, California's opposition stems from the concern that federal restrictions on state registration requirements and qualification standards would deprive it of necessary risk prevention screening tools.
Woofun AI compiled data showing that the $75 million annual financing cap and the $5 million four-year cumulative cap specified in the SEC proposal constitute the core data anchors of this regulatory battle, directly determining the future financing scale and compliance costs of crypto projects.
Industry support and state government concerns form a stark contrast, highlighting the tension between market efficiency and investor protection.
Blockchain payment company Ripple, cryptocurrency exchange Coinbase (COIN.US), and Nasdaq (NDAQ.US) are among industry giants calling for modifications to the SEC proposal.
Ripple seeks transaction safeguards, Coinbase wants clearer rules for subsequent token sales, and Nasdaq demands that tokenized stocks, bonds, and ETF shares be explicitly excluded from the exemption, arguing that tokenized traditional securities should retain existing registration, disclosure, and trading requirements, otherwise crypto platforms would gain regulatory advantages relative to traditional securities markets.
In contrast, state government officials point out that since cryptocurrency investment fraud persists, maintaining corresponding regulatory intensity is necessary.
The California Department of Financial Protection and Innovation reported that its recorded cryptocurrency-related scam cases increased by nearly 200, a 30% rise compared to the previous year.
This data indicates that although the industry calls for deregulation to promote innovation, actual market fraud risks have not decreased but rather shown an upward trend.
Officials also warned that this regulatory model could expand from digital assets to other types of investment products, potentially triggering broader systemic risks.
California plans to study other existing laws that could be used to combat market manipulation and fraud, demonstrating its determination not to compromise in regulatory vacuum zones.
It is worth noting that federal securities laws stipulate that states still have the authority to investigate fraud, deceptive practices, and violations by brokers or dealers, but California believes that if pre-screening risk tools are lost, post-investigation will struggle to compensate for investor losses.
This disagreement reflects the long-standing tension between federal and state powers in the U.S. regulatory system, and in the emerging field of cryptocurrencies, this tension is further amplified.
Regarding market background, BTC is priced at $80,084, down 0.88%, while ETH is priced at $2,327, down 1.34%, with market sentiment showing slight caution.
Meanwhile, the SEC also proposed allowing advisory firms and funds to self-custody cryptocurrency assets, aiming to update existing regulations so investors can access more diverse cryptocurrency investment strategies in the future.
However, this option has strict limitations: it can only be used when it is determined that no qualified custodian is willing or able to custody the specific asset, requires written determination and quarterly reassessment, private keys must be exclusively held by the advisor, and assets must be transferred out once a qualified custodian emerges.
If implemented, this measure would further change the custody landscape for crypto assets, but could also introduce new security risks.
Overall, California's opposition is not an isolated event but a warning from local regulators about the potential negative impacts of federal policy.
As the SEC proposal advances, whether states will unite to form greater resistance will become a key variable in subsequent regulatory developments.
This represents another major test for the U.S. regulatory system following the initial establishment of the crypto regulatory framework, and its outcome will directly affect the compliance pathways and development direction of the global crypto market.
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