Bitcoin and Ethereum are commodities, not securities under the Howey Test.
The debate over cryptocurrency regulations in the United States has brought together different perspectives on how to proceed with the adoption of crypto and blockchain technology. The regulators in the United States understand that the cryptocurrency market is here to stay. Therefore, a complete ban on the crypto industry is not an option as other global jurisdictions move to regulate the industry for mainstream adoption.
Furthermore, a recent study conducted by Triple-A shows that global crypto ownership has surpassed 420 million with North America accounting for about 54 million users. Asia holds the largest share with about 260 million people either using crypto for payments or holding to hedge against inflation.
With the figures expected to rise exponentially in the coming years, institutional investors have begun to double down on their investments in the crypto market, mostly in Bitcoin and Ethereum. Additionally, Bitcoin and Ethereum account for about 70 percent of the entire cryptocurrency market cap which stands at about $1.22 trillion.
Bitcoin and Ethereum Under Howey Test
The Howey test was created by the Supreme Court to determine whether certain transactions qualify to be classified as investment contracts.
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Under the Securities Act of 1933 and the Securities Exchange Act of 1934, transactions that qualify to be classified as investment contracts are considered to be securities and therefore subject to certain disclosure and registration requirements.
Under the Howey test, any transaction is considered a security if it meets four terms, which include:
- It is an investment of money
- There is an expectation of profits from the investment
- The investment of money is in a common enterprise
- Any profit comes from the efforts of a promoter or third party
Under these terms, the SEC has charged Binance and Coinbase Global Inc (NASDAQ: COIN) for listing unregistered offerings and operating illegal securities exchanges. Notably, the United States SEC mentioned several crypto assets that are considered to be securities including Solana ( SOL ), Cardano (ADA), BNB, and BUSD stablecoins. However, experts believe Bitcoin and Ethereum are highly decentralized to be considered unregistered securities under the Howey test.
Moreover, there is no single central body that can claim control of Bitcoin, with Ethereum registering a high level of decentralization following the transition from a proof-of-work (PoW) to a Proof-of-Stake (PoS) consensus mechanism.
Additionally, experts argue that the crypto market is solving a unique market challenge that involves opening up global markets through fast, secure, and scalable transfer of value. For many years, the transfer of value has been running under siloed infrastructure that has proved to be expensive for the user and the institutions themselves.
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