Does Crypto Pass the Howey Test?

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Does Crypto Pass the Howey Test?

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24

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2024

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12

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The Howey test derives its name from a landmark U.S. Supreme Court case in 1946, SEC v. W.J. Howey Co., that established a blueprint for whether a transaction qualifies as an investment contract. If an asset meets the test criteria—including a cryptocurrency—it qualifies, and the Securities and Exchange Commission is obligated to analyze it further to see if it actually is an investment contract.

Success relies on the efforts of others: The success of the investment depends predominantly on the efforts of individuals other than the investor.

There is a common enterprise: The investors and the enterprise behind the transaction, asset, or product are bound by a financial relationship, and the fortunes of the investors are tied to the enterprise’s success

There is an expectation of profits: The investor anticipates financial gains from the investment, typically through the enterprise’s success

Money is invested: There must be monetary investment involved in the transaction, or at least some consideration passes from one party to another

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