BlockNews.com
  • Crypto
  • NFT
  • Metaverse
  • DeFi
  • Business
  • Technology
  • Opinion
  • Guides
No Result
View All Result
SUBSCRIBE
BlockNews.com
  • Crypto
  • NFT
  • Metaverse
  • DeFi
  • Business
  • Technology
  • Opinion
  • Guides
No Result
View All Result
BlockNews.com
No Result
View All Result
Home Crypto

How to Decipher the SEC´s “Framework for ‘Investment Contract’ Analysis of Digital Assets”

BlockNews Team by BlockNews Team
September 7, 2022
in Crypto, Guides, Politics
Reading Time: 4 mins read
A A
How to Decipher the SEC´s “Framework for ‘Investment Contract’ Analysis of Digital Assets”
1
SHARES
12
VIEWS
Share on TwitterShare on Reddit

Derived from a Supreme Court case – SEC v. W.J. Howey Co., 328 U.S. 293 (1946) – the SEC’s Framework for digital asset analysis elaborates upon four factors: (1) an investment of money; (2) in a joint enterprise; (3) with a reasonable expectation of profits; and (4) derived from the efforts of others. Through this analysis—published in April 2019—interested parties can determine whether they may need to register their digital asset as a “security” with the SEC. 

You might also like

Around The Block – MAR 17 Week in News

Cassava Network, An African Web3 Platform, Has Partnered With Non-Custodial Wallet To Widen Crypto Reach In Africa

UAE Announces Free Zone for Digital and Virtual Asset Firms

The Framework’s Background

Security must be registered with the SEC or exempted as such. While there are many types of protection – such as stocks and bonds – the most relevant for purposes of the SEC’s Framework is an “investment contract.” In its purest form, an “investment contract” involves an investment of money or other value in exchange for an asset that leads a reasonable investor to expect profit or capital appreciation executed by the issuing company. 

Understanding Howey’s Four Factors

The Howey Test is important because it is applied to assets – including digital assets – regardless of whether they resemble specific securities. Further, its analysis focuses “not only on the form and terms of the instrument itself . . but also on the circumstances surrounding the digital asset and how it is offered, sold, or resold . . . .”

In the Framework, the SEC provides a list of features and circumstances under each Howey factor to help the public assess whether their asset may meet the definition of an investment contract. That said, the Framework is geared toward offering and selling digital assets—tokens.

Step-By-Step Analysis of the Framework

Each of the below factors from Howey must be satisfied for an “investment contract.” If all aspects are met, the digital asset is an investment contract and must register with the Commission as security. If one or more factors are not satisfied, then the Howey Test is not met, and the digital asset is not an investment contract. In these latter cases, the asset need not register as security.

  1. 1. The Investment of Money 

This factor is easy to satisfy. Generally, when an individual gives money or other value in exchange for a digital asset, money is invested. This includes cash in fiat, crypto, or even airdrops.

  1. 2. Common Enterprise 

This factor is also satisfied in most cases since there is usually a pooling of investor fortunes for a common purpose linked to each other or linked to the promoter’s efforts as well as a single issuer behind the project.

  1. 3. Reasonable Expectation of Profits 

This factor has two aspects: (1) what profit is? and (2) is the individual’s expectation reasonable? Courts have indicated that “capital appreciation” from an initial investment or “participation in earnings” from one’s funds counts as profit. Still, increases in price due to “external market forces” such as inflation or supply/demand factors are not profitable. The facts and circumstances of each case would need to be evaluated when determining whether the expectation is reasonable.

Also necessary is a review of the “economic reality” of the situation—an objective review of what is occurring in reality.

  1. 4. Derived from Efforts of Others

This factor is a bit nuanced and asks several essential questions according to the Framework: (1) do the purchasers rely on the efforts of the “active participant”—referring to the “promoter, sponsor, or another third party”—and to what extent is such reliance? and (2) are the efforts of the active participant significant and involve organizational measures such that they can affect the enterprise’s failure or success? Or are those efforts more “ministerial”? 

Case law demonstrates that the more the individual relies on the efforts of others and the more those efforts involve managerial duties, the more likely it is that this factor is satisfied. 

Conclusion

The SEC’s Framework for investment contracts regarding digital assets is increasingly being used to ascertain whether novel digital asset projects may need to register with the Commission as a “security.” The SEC believes that this Framework – via the Howey Test – is necessary to give market participants the tools they need to make informed decisions about unique financial technologies, novel methods of capital formation, and new market structures.

Tags: BlockchaincryptoWeb3
TweetShareShare

Recommended For You

Around The Block – MAR 17 Week in News

by BlockNews Team
March 17, 2023
0
Around the Block

Introduction In this recap of the crypto world, we will explore the events and news that had the most significant impact in the past week of March 13....

Read more

Cassava Network, An African Web3 Platform, Has Partnered With Non-Custodial Wallet To Widen Crypto Reach In Africa

by BlockNews Team
March 17, 2023
0
Africa web3

Cassava Network's v3 aims to build a bridge between Web2 African users and the Web3 space. Cassava Network partners with UniPass, a non-custodial wallet to onboard more African...

Read more

UAE Announces Free Zone for Digital and Virtual Asset Firms

by BlockNews Team
March 17, 2023
0
RAK DAO UAE

Emirate Ras Al Khaimah will launch a free zone for companies in the digital and virtual crypto sectors The RAK Digital Assets Oasis platform is made for the...

Read more

Fidelity Crypto Opens to the Public: A Game-Changer in Commission-Free Crypto Trading

by BlockNews Team
March 17, 2023
0
fidelity building

Fidelity Digital Assets has opened its Fidelity Crypto platform to the public, offering commission-free trading of bitcoin and ether to more than 37 million retail users. Fidelity Crypto...

Read more

The Takedown of ChipMixer: A Turning Point in the Battle Against Crypto Laundering

by BlockNews Team
March 17, 2023
0
chipmixer

International authorities dismantled ChipMixer, a major cryptocurrency mixing service linked to criminal activities, and seized over $42 million in Bitcoin. ChipMixer was allegedly involved in high-profile crypto hacks,...

Read more
Next Post
Eth-Classic

Ethereum and Ethereum Classic: A Brief History

Related News

Bitcoin-Eth

What The Market Is Looking Like For Bitcoin And Ethereum, Two Months To The Year’s End

October 8, 2022
Bitcoin-Users

Analyst Willy Woo Says Bitcoin on Track To Hit 1,000,000,000 Unique Users Way Before 2030

October 18, 2022
LG-NFT

LG introduces NFTs to Smart TVs in the US

September 8, 2022

Browse by Category

  • Breaking News
  • Business
  • Crypto
  • DeFi
  • Finance
  • Gaming
  • Guides
  • Investing
  • Media
  • Metaverse
  • NFT
  • Opinion
  • Politics
  • Social
  • Technology
  • Uncategorized
BlockNews.com

BlockNews.com brings you the most important Crypto and NFT news in the space.

CATEGORIES

  • Breaking News
  • Business
  • Crypto
  • DeFi
  • Finance
  • Gaming
  • Guides
  • Investing
  • Media
  • Metaverse
  • NFT
  • Opinion
  • Politics
  • Social
  • Technology
  • Uncategorized

RECENT POSTS

  • Around The Block – MAR 17 Week in News March 17, 2023
  • Cassava Network, An African Web3 Platform, Has Partnered With Non-Custodial Wallet To Widen Crypto Reach In Africa March 17, 2023
  • UAE Announces Free Zone for Digital and Virtual Asset Firms March 17, 2023

© 2022 BlockNews.com - Crypto and NFT news website by JRNY Club.

No Result
View All Result
  • Home
  • Crypto
  • NFT
  • Metaverse
  • DeFi
  • Business
  • Technology
  • Opinion
  • Guides

© 2022 BlockNews.com - Crypto and NFT news website by JRNY Club.

Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?