What is it about?
The Howey test checks whether an asset of any type can be classified as a security. This is accompanied by regulatory requirements and also tax law aspects that apply to both the issuer and the holder of the securities.
The SEC has ruled that crypto projects in the U.S. must also pass the Howey Test because they are securities and therefore subject to securities regulation.
For an asset to be classified as a security 3 conditions must be met.
- The asset is an investment product and can be exchanged for value.
- The investment is associated with a certain risk.
- The asset is tradable
A Security thus represents an ownership position, creditor relationship, or property rights as represented in an option.
How does it work?
For a transaction to be designated as an investment contract, four questions must be asked about the transaction in question. If the asset meets the criteria, then it is an investment contract:
- Is it an investment of money or another asset?
- Is there an expectation of profits associated with the investment?
- Is the invested money in a joint venture?
- Is the profit generation largely outside the investor’s control?
If the answer to these questions is clearly yes, the security is also subject to securities regulation.
The SEC (Securities and Exchange Commission) repeatedly subjects crypto projects to such reviews.
The controversy surrounding Ripple has repeatedly caused a stir in the crypto media in recent months.
