The crypto industry is facing a trillion-dollar lawsuit after the recent market crash
6/18/2022, 11:05 AM
I'd just like to start off by saying that I'm not a lawyer, and this is not legal advice. If you're looking for legal advice, consult with a qualified attorney. With that said, let's get into it.
The Howey Test comes from the 1946 Supreme Court case SEC v. WJ Howey Co., in which the court ruled that certain contracts for the sale of real estate were securities, and therefore subject to regulation by the Securities and Exchange Commission (SEC).
The key part of the ruling was that a security is any contract "involving an investment of money" where there is an expectation of profits "derived from the efforts of others". In other words, a security is any type of investment where you are relying on someone else to do the work for you.
This definition has been applied to a variety of different investments over the years, including stocks, bonds, and even some cryptocurrencies. The key question when applying the Howey Test to crypto is whether or not there is an expectation of profits derived from the efforts of others.
In most cases, it is pretty clear that there is such an expectation. For example, when you buy a stock, you are investing in a company and expecting that company to make money and pay dividends. When you buy a bond, you are lending money to a government or corporation and expecting to be paid back with interest. And when you buy most cryptocurrencies, you are investing in a project and expecting that project to succeed (and hopefully make you some money in the process).
However, there are some cases where it is less clear whether or not there is an expectation of profits derived from the efforts of others. For example, when you buy gold or silver bullion, you are buying a physical commodity and hoping that its price will go up so you can sell it at a profit. But since gold and silver don't generate any income themselves (unlike stocks or bonds), it's debatable whether or not they meet the definition of a security under Howey. Similarly, when you buy Bitcoin or Ethereum because you think their prices will go up ,you might also be considered an investor rather than speculator .(gambler) on those assets' prices.(upward trend) However again since both Bitcoin & Ethereum have shown themselves capable fo generating revenue & profit through staking & yield farming respectively; once more we could see these assets as having met Howey's criteria thereby classifying them as securities..(profit based endeavors
The Howey Test comes from the 1946 Supreme Court case SEC v. WJ Howey Co., in which the court ruled that certain contracts for the sale of real estate were securities, and therefore subject to regulation by the Securities and Exchange Commission (SEC).
The key part of the ruling was that a security is any contract "involving an investment of money" where there is an expectation of profits "derived from the efforts of others". In other words, a security is any type of investment where you are relying on someone else to do the work for you.
This definition has been applied to a variety of different investments over the years, including stocks, bonds, and even some cryptocurrencies. The key question when applying the Howey Test to crypto is whether or not there is an expectation of profits derived from the efforts of others.
In most cases, it is pretty clear that there is such an expectation. For example, when you buy a stock, you are investing in a company and expecting that company to make money and pay dividends. When you buy a bond, you are lending money to a government or corporation and expecting to be paid back with interest. And when you buy most cryptocurrencies, you are investing in a project and expecting that project to succeed (and hopefully make you some money in the process).
However, there are some cases where it is less clear whether or not there is an expectation of profits derived from the efforts of others. For example, when you buy gold or silver bullion, you are buying a physical commodity and hoping that its price will go up so you can sell it at a profit. But since gold and silver don't generate any income themselves (unlike stocks or bonds), it's debatable whether or not they meet the definition of a security under Howey. Similarly, when you buy Bitcoin or Ethereum because you think their prices will go up ,you might also be considered an investor rather than speculator .(gambler) on those assets' prices.(upward trend) However again since both Bitcoin & Ethereum have shown themselves capable fo generating revenue & profit through staking & yield farming respectively; once more we could see these assets as having met Howey's criteria thereby classifying them as securities..(profit based endeavors