Perhaps the most complex point that needs clarity is around which crypto assets are commodities and which are securities. The CFTC and SEC have been debating this issue in the U.S. for several years now, but unfortunately they haven’t provided any clarity to the market.
At this point, it seems clear that Congress needs to step in and pass legislation. This can be done with an updated version of the Howey test that applies to crypto tokens that may fall under the definition of an investment contract.
A modern day Howey Test for cryptocurrency might look something like this:
- Was there an investment of money? If the crypto asset issuer hasn’t sold the asset for money for the purpose of building a project, it’s not a security.
- Is the investment in a common enterprise? For a crypto asset to be a security, it must be controlled and operated by a centralized organization like a company. If a project has become sufficiently decentralized, it’s not a security.
- Is there an expectation of profit? If the primary purpose of the crypto asset is some other form of utility (voting, governance, incentivizing actions of a community, etc) then it is very unlikely to be considered a security.
- Are the profits to be derived primarily from the efforts of others? If the expectation of profit primarily comes from participants who are unaffiliated with the issuance of the asset, then the project is sufficiently decentralized and would not be considered a security.
It’s important to note that all four of these prongs need to be satisfied for the asset to be considered a security….
Source: Regulating Crypto: How we move forward as an industry from here – Blog