Dear Readers,
A lot has been said in recent years about regulation within the Bitcoin space. Many participants, in particular institutional investors, welcome the idea of clarity from government bodies regarding the treatment of digital assets for tax and investment purposes. However, many of the original adherents to the space, cypherpunks and libertarians, believe in their own self-sovereignty and have little interest in welcoming governments or their regulators into the industry. Regardless of your own feelings on the topic, it is all but assured at this point that governments will attempt to regulate Bitcoin as much as they can.
Perhaps the most pertinent regulatory question currently, at least in countries with developed investment markets, is whether regulators will define specific cryptocurrencies and other digital assets as “securities”. In those countries, an asset’s status as a security opens it up to an extensive amount of scrutiny and supervision, which can have significant impacts. If you don’t believe me, think back to what happened to the cryptocurrency XRP when Ripple, the company that created it, was sued by the United States Securities and Exchange Commission (SEC) for allegedly selling it as an unregistered security.
Founders and users in the United States have what regulators believe is a helpful tool in determining whether a digital asset should be classified as a security: the “Howey test”. The reality is that performing a Howey analysis is rather nuanced, and most of us likely aren’t lawyers. That said, there are several criteria that are commonly reviewed in determining the status of any asset or investment:
Is there an investment of money?
Is it a common enterprise?
Is there an expectation of profit?
Is said profit derived from the efforts of others?
The best way to familiarize oneself with the Howey test in the context of Bitcoin is to perform our own analysis, and we’ll attempt to do so here:
