The SEC's $5M crypto exemption sets no limit on what you buy

The SEC's crypto startup exemption, open for comment until October 20, lets a token sell $5M to anyone: no buyer cap, no financials, no holding period.

The Editors · Crypto · 8 min read · Oct 19, 2026

Bronze street lamps in front of the curved glass facade of the U.S. Securities and Exchange Commission headquarters in Washington, D.C. — Photo: David (Flickr user: dbking)(opens in a new tab), CC BY 2.0(opens in a new tab), via Wikimedia Commons

By the numbers

$5Mthe most a crypto project could sell over four years under the proposed startup exemption

Nonelimit on how much one retail buyer can put into a startup-exemption token

0 daysholding period before those tokens can be resold, against one year under crowdfunding rules

10%of income or net worth, the retail cap that applies only in the $20M and $75M tiers

The SEC's proposed crypto startup exemption would let a token project raise up to $5 million over four years from anyone, with no limit on what a single retail buyer puts in, no financial statements, no registered platform in the middle and no holding period before the tokens trade. The public comment period on the rule, called Regulation Crypto Assets, closes on October 20, 2026.

That $5 million ceiling is the same one that already governs equity crowdfunding. Put the two side by side and the crypto version drops every buyer protection the crowdfunding rules carry. The SEC says so in its own text: the exemption "would not limit an issuer's ability to sell covered investment contracts to retail investors (by, for example, prohibiting sales to non-accredited investors or limiting the amount that may be sold to such investors)", and general solicitation would be allowed.

That's the fact. What follows is our read of what it means for the person on the buying end.

What the startup exemption allows

The proposal, announced August 18 and published in the Federal Register on August 21, sets out three tools. The smallest is the startup exemption, a one-time pass that runs for up to four years. A project files a notice called Form NOR on EDGAR, posts a set of narrative disclosures on its own website, and can then sell up to $5 million of tokens. It updates the disclosures once a year, within 30 days of December 31, when something material has changed. Within four years it files a closing report, Form TR, and its disclosure duties end.

The disclosures cover ten areas: the token, the offering, the network, the team, the development plan, the code and its security, the token's economics, governance, the ecosystem and the risks. They are narrative. The SEC wrote that the startup exemption leaves out "disclosing financial information or providing narrative disclosures regarding the issuer's financial condition in a Commission filing", to keep the cost in line with a $5 million raise.

Tokens sold this way "would not be restricted securities or otherwise subject to rule-based resale restrictions". A buyer can sell the day the tokens land, and so can everyone else who bought.

The crypto exemption against crowdfunding, line by line

Regulation Crowdfunding is the existing route for a small company to sell shares to the public. Its ceiling is $5 million in a 12-month period. Here is how its rules compare with the crypto proposal.

Rule	Regulation Crowdfunding	Proposed crypto startup exemption
Ceiling	$5M every 12 months	$5M over four years, once
Cap per retail buyer	The greater of $2,500 or 5% when income or net worth is under $124,000; 10% above that, at most $124,000 a year	None
Where the sale happens	A broker-dealer or funding portal registered with the SEC and FINRA	Not among the six conditions; the issuer can sell directly
Financial statements	Certified up to $124,000, reviewed by an accountant up to $618,000, audited above $1.235M	None required
Resale	Generally barred for one year	No holding period

The crowdfunding figures come from the SEC's investor bulletin on crowdfunding limits and its guidance for issuers, updated October 16, 2024. The crypto column comes from the proposing release itself.

The ceiling is looser too. Crowdfunding resets every year. The startup exemption is $5 million in total, which caps the project and does nothing for the buyer. A retail buyer could put their whole savings into one $5 million raise, and the rule as written would allow it.

The bigger tiers do cap retail buyers

The second tool, the fundraising exemption, is modelled on Regulation A and has two tiers: $20 million a year in Tier 1, $75 million in Tier 2. Here a non-accredited buyer is held to 10% of the greater of annual income or net worth. Issuers file two years of financial statements, audited in Tier 2, and report every six months and every year.

So the SEC drew the line by size. Raise more than $5 million and the buyer gets a cap and audited numbers. Raise less and the buyer gets a website.

Who decides when the token stops being a security

The third tool is a safe harbor, and it is where the four years end. An issuer can file Form TR certifying that it has finished, or permanently stopped, the "essential managerial efforts" it promised buyers, together with an analysis of why. If the conditions hold, the SEC treats the investment contract as gone and the token as no longer subject to one, according to the SEC's fact sheet.

The yardstick is the issuer's own promise. The release says that if a project promised decentralization, whether it got there "would be based on how the issuer defined or otherwise described decentralization, not a general market conception of what constitutes decentralization". A project that defines the finish line loosely in its first disclosure can cross it early. The SEC keeps the right to challenge an unsupported filing, as WilmerHale's summary notes, and other parties can still argue the token is a security.

The proposal also preempts state securities registration for offerings under any of these exemptions, and for resales while the issuer keeps filing. State regulators would have no registration or qualification review of these sales.

The SEC's case for the light touch

The argument for this design is in the release, and it deserves a fair hearing. A token is supposed to be used on a network: paid as fees, handed out in airdrops, given to testers. A one-year lockup or a per-buyer cap would choke that use, and the SEC names "network effects" as the reason it dropped resale limits. It also argues that rules too heavy for small projects push them offshore, where U.S. buyers get even less. And every issuer stays subject to the antifraud and antimanipulation provisions of securities law, so a lie in the disclosure is still a violation.

The four-year window has a political source as well. The release cites Commissioner Peirce's three-year safe harbor and the four-year maturity test in the House's market structure bill, the same fight we covered in the CLARITY Act's three open disputes. The SEC chose the longer of the two.

Our read: the network-use argument explains the missing lockup. It doesn't explain the missing per-buyer cap. A cap limits how much one person can lose; it does nothing to stop a token from being spent as gas or handed out in an airdrop. The bigger tiers already carry one. Comment letters asking for the same 10% limit at the $5 million level would cost the design nothing it says it needs.

What to check before buying a startup-exemption token

None of this is final. The SEC can change any of it after reading the comments, and it has set no adoption date. If it passes as proposed, a buyer's protection is what they read before they buy:

Find the Form NOR on EDGAR. It dates the start of the four years and names the website holding the disclosures.
Read how the project defines "done". The managerial efforts it promises are the test the safe harbor will use later. Vague promises make an early exit easy.
Read the token economics for insider supply. None of the startup exemption's six conditions locks team tokens, and none locks yours.
Size the position yourself. The rule won't. The crowdfunding cap of 5% to 10% of income or net worth is a reasonable outside limit to borrow.