Modern-Day Version of Howey Test For Cryptocurrencies- How Does It Look Like?

Modern-Day Version of Howey Test For Cryptocurrencies- How Does It Look Like?

Howey test, which the Securities and Exchange Commission uses to decide whether a digital asset should be classed as a security, has certain limitations, according to SEC Commissioner Hester Peirce. I can relate to this statement very much. I felt the same way too, especially when they used the same framework for cryptocurrencies. I will walk you through my thoughts on what should the modern-day version look like.

What is Howey Test?

The Howey test is used by the U.S. Securities and Exchange Commission (SEC) to determine whether a particular financial product or transaction qualifies as an “investment contract.” If a product or transaction is deemed to be an investment contract, it is subject to certain regulatory requirements under federal securities laws.

The test is named after the 1946 Supreme Court case SEC v. W.J. Howey Co., in which the Court established a four-part test to determine whether a transaction qualifies as an investment contract:

1.         It involves an investment of money

2.         There is an expectation of profits from the investment

3.         The investment of money is in a common enterprise

4.         Any profit comes from the efforts of a promoter or third party

If all four of these criteria are met, the transaction is considered an investment contract and is subject to regulation as a security.

What is a Security?

Before we look further, let’s look at what is a security. A security is a financial instrument representing an ownership position in a publicly traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

There are several types of securities, including:

1.         Stocks: Stocks represent ownership in a company and entitle the holder to a share of the company’s profits.

2.         Bonds: Bonds are a type of debt security that involves borrowing money from an investor for a set period of time at a fixed interest rate.

3.         Options: Options are a type of derivative security that gives the holder the right, but not the obligation, to buy or sell a specific asset at a predetermined price within a specific time frame.

4.         Mutual funds: Mutual funds are investment vehicles that pool money from multiple investors and use that money to buy a diversified portfolio of stocks, bonds, or other securities.

5.         Exchange-traded funds (ETFs): ETFs are investment funds that are traded on stock exchanges, much like stocks. They typically track an index, such as the S&P 500, or a specific sector or theme.

6.         Derivatives: Derivatives are financial instruments that are derived from other assets, such as stocks, bonds, commodities, or currencies. They are used to hedge risk or speculate on the price movements of the underlying asset. Examples of derivatives include futures, options, and swaps.

Howey Test Applied to Cryptocurrencies

The Howey test is a well-established legal test used for decades to determine whether a financial product or transaction qualifies as an investment contract and is subject to regulation as a security. While the test was originally developed in the context of traditional securities, it has also been applied to cryptocurrency and initial coin offerings (ICOs).

The four-part test established by the Howey case has generally been applied to cryptocurrency in the same way as it has been used to traditional securities. However, there may be some nuances or specific considerations that apply specifically to cryptocurrency when applying the Howey test.

For example, the first prong of the test, which requires an investment of money, may be satisfied by the purchase of a cryptocurrency using fiat currency (such as U.S. dollars) or by the exchange of one cryptocurrency for another.

The second prong, which requires an expectation of profits, may be satisfied by the potential appreciation of the cryptocurrency’s value or by the ability to earn returns through the use of the cryptocurrency in a particular platform or network.

The third prong, which requires the investment of money to be in a common enterprise, may be satisfied by the pooling of resources or the use of a shared infrastructure or platform.

The fourth prong, which requires any profits to come from the efforts of a promoter or third party, may be satisfied by the involvement of a central authority or the use of a decentralized autonomous organization (DAO) to manage the cryptocurrency or ICO.

Modern-Day Version of Howey Test for Cryptocurrencies

The above pointers may sound familiar to you. You are a project owner and have spoken to a lawyer before; this is the same advice they gave you. My question now is, since the state of play in cryptocurrencies are changing rapidly, should there be an adapted version for the modern day?

The modern-day version might look something like this:

1.         Is there an investment of money?

If the crypto digital asset issuer has not sold any assets issued to build its project. It is most likely not considered a security.

2.         Is there an expectation of profits from the investment?

If the crypto asset is utility-based, for example, it is used for voting purposes. It is most likely not considered a security.

3.         Is the investment of money in a common enterprise?

If the project is decentralized, it is not controlled and operated by a centralized entity. It is most likely not considered a security.

4.         Are any profit comes from the efforts of a promoter or third party?

If the profit primarily comes from the community which has nothing to do with the issuance of the crypto asset. It is most likely not considered a security.

Reminding all again, when all four criteria are met, the investment is considered a security and is subject to regulatory requirements of the Securities Act of 1933. The application of the Howey test to cryptocurrency may involve considering the specific characteristics and features of the particular cryptocurrency or ICO in question, as well as the broader market and regulatory context in which it operates.

Take some time to do a self-evaluation based on the above thoughts shared. If you have time, you can ask yourself these questions about the tokens you invested. This is a good exercise for self-reference. I am not a lawyer, and none of the written content is formal advice.

“If you are a retail crypto investor- Do your crypto research. Learning about the regulation side of things can help you with your investment decision, avoiding unnecessary issues down the road.

If you are a project and you claim to be decentralized. Please stay decentralized. This will also avoid getting into any regulatory problems.” – Anndy Lian

 

 

Source: https://www.benzinga.com/22/12/30205466/modern-day-version-of-howey-test-for-cryptocurrencies-how-does-it-look-like

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

j j j

Regulating Cryptocurrencies: Are you Investing in Securities?

Regulating Cryptocurrencies: Are you Investing in Securities?

There is an ongoing legal case between SEC and Ripple Labs. In December 2020, the San Francisco-based corporation and its current and former senior executives were sued by the SEC on charges that they had been selling unregistered securities worth $1.3 billion since the token’s inception. The commission declared XRP as a security. You should have heard of this case if you are in the crypto industry. Many questioned how this happened and will this have any affect on the rest of the cryptocurrencies. What is a security? How SEC determine what is a security? I will try to break it down in this article.

What is Howey Test?

The Howey test is used by the U.S. Securities and Exchange Commission (SEC) to determine whether a particular financial product or transaction qualifies as an “investment contract.” If a product or transaction is deemed to be an investment contract, it is subject to certain regulatory requirements under federal securities laws.

The test is named after the 1946 Supreme Court case SEC v. W.J. Howey Co., in which the Court established a four-part test to determine whether a transaction qualifies as an investment contract:

  1. It involves an investment of money
  2. There is an expectation of profits from the investment
  3. The investment of money is in a common enterprise
  4. Any profit comes from the efforts of a promoter or third party

If all four of these criteria are met, the transaction is considered an investment contract and is subject to regulation as a security.

What is a Security?

Before we look further, let’s look at what is a security. A security is a financial instrument representing an ownership position in a publicly traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

There are several types of securities, including:

  1. Stocks: Stocks represent ownership in a company and entitle the holder to a share of the company’s profits.
  2. Bonds: Bonds are a type of debt security that involves borrowing money from an investor for a set period of time at a fixed interest rate.
  3. Options: Options are a type of derivative security that gives the holder the right, but not the obligation, to buy or sell a specific asset at a predetermined price within a specific time frame.
  4. Mutual funds: Mutual funds are investment vehicles that pool money from multiple investors and use that money to buy a diversified portfolio of stocks, bonds, or other securities.
  5. Exchange-traded funds (ETFs): ETFs are investment funds that are traded on stock exchanges, much like stocks. They typically track an index, such as the S&P 500, or a specific sector or theme.
  6. Derivatives: Derivatives are financial instruments that are derived from other assets, such as stocks, bonds, commodities, or currencies. They are used to hedge risk or speculate on the price movements of the underlying asset. Examples of derivatives include futures, options, and swaps.

Howey Test Applied to Cryptocurrencies

The Howey test is a well-established legal test used for decades to determine whether a financial product or transaction qualifies as an investment contract and is subject to regulation as a security. While the test was originally developed in the context of traditional securities, it has also been applied to cryptocurrency and initial coin offerings (ICOs).

The four-part test established by the Howey case has generally been applied to cryptocurrency in the same way as it has been used to traditional securities. However, there may be some nuances or specific considerations that apply specifically to cryptocurrency when applying the Howey test.

For example, the first prong of the test, which requires an investment of money, may be satisfied by the purchase of a cryptocurrency using fiat currency (such as U.S. dollars) or by the exchange of one cryptocurrency for another.

The second prong, which requires an expectation of profits, may be satisfied by the potential appreciation of the cryptocurrency’s value or by the ability to earn returns through the use of the cryptocurrency in a particular platform or network.

The third prong, which requires the investment of money to be in a common enterprise, may be satisfied by the pooling of resources or the use of a shared infrastructure or platform.

The fourth prong, which requires any profits to come from the efforts of a promoter or third party, may be satisfied by the involvement of a central authority or the use of a decentralized autonomous organization (DAO) to manage the cryptocurrency or ICO.

Modern-Day Version of Howey Test for Cryptocurrencies

The above pointers may sound familiar to you. You are a project owner and have spoken to a lawyer before; this is the same advice they gave you. My question now is, since the state of play in cryptocurrencies are changing rapidly, should there be an adapted version for the modern day?

The modern-day version might look something like this:

  1. Is there an investment of money?

If the crypto digital asset issuer has not sold any assets issued to build its project. It is most likely not considered a security.

  1. Is there an expectation of profits from the investment?

If the crypto asset is utility-based, for example, it is used for voting purposes. It is most likely not considered a security.

  1. Is the investment of money in a common enterprise?

If the project is decentralized, it is not controlled and operated by a centralized entity. It is most likely not considered a security.

  1. Are any profit comes from the efforts of a promoter or third party?

If the profit primarily comes from the community which has nothing to do with the issuance of the crypto asset. It is most likely not considered a security.

Reminding all again, when all four criteria are met, the investment is considered a security and is subject to regulatory requirements of the Securities Act of 1933. The application of the Howey test to cryptocurrency may involve considering the specific characteristics and features of the particular cryptocurrency or ICO in question, as well as the broader market and regulatory context in which it operates.

Take some time to do a self-evaluation based on the above thoughts shared. If you have time, you can ask yourself these questions about the tokens you invested. This is a good exercise for self-reference. I am not a lawyer, and none of the written content is formal advice.

“If you are a retail crypto investor- Do your crypto research. Learning about the regulation side of things can help you with your investment decision, avoiding unnecessary issues down the road.

If you are a project and you claim to be decentralized. Please stay decentralized. This will also avoid getting into any regulatory problems.” – Anndy Lian

 

Source: https://www.securities.io/regulating-cryptocurrencies-are-you-investing-in-securities/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

j j j

3 cryptocurrencies you should invest in this August to cash in on the market rebound

3 cryptocurrencies you should invest in this August to cash in on the market rebound

Bitcoin and the cryptocurrency market bounced back strongly in July after a severe correction during the second quarter. Bitcoin increased in value by 17%, its highest monthly performance since October 2021, according to a CryptoRank Platform tweet on August 1.

The July climb indicates that the market is starting the new month on a positive footing after maintaining its crucial levels to sit above the important $1 trillion market cap in the opening few days.

 

 

In light of that, investors are coming back to the market as the path of recovery continues. Below are three coins to invest in, in August, in order to cash in on the rebound.

 

1. Ethereum 

Ether, the second largest cryptocurrency based on market capitalisation has enjoyed a rally recently, thanks to the announcement of its upcoming ‘Merge’.

And now, the community is starting August on a positive note as plans are now in place for the Goerli Merge to occur on Aug 11, the final testnet merge prior to transitioning to a proof-of-stake (PoS) blockchain.

The Merge is expected to push Ether to new heights

The Merge is a massive step for Ethereum and the community and that is the reason to bet on it in August. It keeps showing great strength of bullish movement as the anticipated merge gets closer.

Ethereum is currently trading at $1,730 but a break of this region would send Ethereum’s price to $2,400 and even higher if the bulls and sentiments of the market stay strong ahead of the Merge.

It should definitely be on the list of your coins to invest in August.

 

2. Kava

Kava is an extremely fast layer one blockchain that combines the Ethereum and Cosmos ecosystem into a single, scalable network. The ecosystem has seen groundbreaking developments which bode a positive movement for its native token.

On August 31, Kava 11 is set to launch and it is expected to greatly increase the total value locked in the platform. The main features of the upgrade will include: KAVA liquid staking, KAVA earns – a yield aggregator, MetaMask support for all KAVA transactions and Protocol owned liquidity.

Kava 11 is set to launch on August 31

The sentiment in the KAVA community has been positive and there seems to be an air of excitement which means it should be on your list of coins to invest in.

BigONE Exchange’s chair Anndy Lian explained to Capital.com that Kava’s function to lend and borrow assets using a number of cryptocurrencies as collateral still serves as a big plus for the platform.

“The slide in the price recently is due to the overall market conditions. Some investors may see steeper plunges due to the performances of their collateralised assets. In my humble opinion, there is nothing to be worried about at this point, their codes are sound and their treasury is still holding up well.”

In the build-up to the upgrade scheduled for late in August, the native token is expected to trade around $5, over 100% of its current market price of $2.18.

Consider having it in your list of coins to invest in.

 

3. Monero

Monero is a secure and confidential blockchain that focuses on providing complete privacy for its users with $XMR as its native token.

The network will undergo a network upgrade on Aug 13 which will introduce various new features, such as an upgrade in Bulletproofs algorithm and a ring-size increase from 11 to 16.

One key reason $XMR is one of the coins with potential in August 2022 is its rapid growth rate. This will eventually boost the adoption of the Monero network, pushing the price of $XMR to new highs.

Monero network will undergo an upgrade on August 13

The token has enjoyed a decent rally in the last 30 days by moving from around $117 to its current price of $166. If it breaks out from that region which is very likely due to the hype surrounding its new features, the price would be expected to increase towards the $200 mark.

Monero($XMR) should be on your list of coins to invest in!

 

 

Are there other cryptocurrencies you believe ought to make the list? Please suggest in the comment box.

 

Original Source: https://technext.ng/2022/08/08/here-are-3-coins-to-invest-in-august/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

j j j