Coin Center Director of Research Peter Van Valkenburgh has prepared a report regarding the regulation of various cryptocurrencies within a traditional securities framework. Although the report found cryptocurrencies attached to public blockchains, such as bitcoin and ether , should not be regulated as securities, the team behind the document did find that the definition of a security may apply to some of the more centralized crypto-assets currently on the market.
Most of Coin Center’s report provided a general overview of Bitcoin and related technologies for regulators, but the end of the report mainly focused on the Howey test . The Howey test is a way to figure out whether something should be defined as a security and is defined by the following parameters in the report:
“An investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person [1] invests his money in [2] a common enterprise and is led to [3] expect profits [4] solely from the efforts of the promoter or a third party, [excluded factors] it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.”
Bitcoin and many altcoins are not well-suited for the Howey test, which is why the report recommends regulators do not treat these cryptocurrencies as securities. The Howey test becomes a bit more viable when talking about blockchain initiatives that have low transparency, involve a pre-sale of tokens, or a more centralized approach to transaction validation (such as a permissioned ledger ).
The Coin Center report on treating cryptocurrencies as securities went through all four prongs of the Howey test to determine which types of crypto-assets should be regulated.
Investment of Money
According to Coin Center’s report, the way a cryptocurrency is distributed to […]
