By
Tolu Ajiboye
May 8th, 2024
The United States SEC has argued that almost all crypto assets are unregistered securities but experts see it differently for Bitcoin and Ethereum.
The cryptocurrency regulatory debate in the United States has brought together different minds on understanding how to proceed with the crypto and blockchain technology adoption. Undeniably, the United States regulators understand that the crypto market is here to stay. As a result, an entire ban on the crypto industry is out of the picture as other global jurisdictions move to regulate the industry for mainstream adoption.
Moreover, a recent study conducted by Triple-A shows that global crypto ownership has surpassed 420 million with the North American continent amounting to about 54 million users. Asia holds the largest share with about 260 million people either using crypto for payments or holding to hedge against inflation.
With the figures expected to rise exponentially in the coming years, institutional investors have begun to double down their investments in the crypto market, mostly Bitcoin and Ethereum. Moreover, Bitcoin and Ethereum account for about 70 percent of the entire cryptocurrency market cap which stands at about $1.22 trillion.
Bitcoin and Ethereum Under Howey Test
The Howey test was created by the Supreme Court to determine whether certain transactions qualify to be classified as investment contracts.
Under the Securities Act of 1933 and the Securities Exchange Act of 1934, the transactions that qualify to be classified as investment contracts are considered to be securities and therefore subjected to certain disclosure and registration requirements.
Under the Howey test, any transaction is considered a security if it meets four terms. Among the stipulated terms are:
- It is an investment of money
- There is an expectation of profits from the investment
- The investment of money is in a common enterprise
- Any profit comes from the efforts of a promoter or third party
Under these terms, the SEC has charged Binance and Coinbase Global Inc (NASDAQ: COIN) for listing unregistered offerings and operating illegal securities exchanges. Notably, the United States SEC mentioned several crypto assets that are considered to be securities including Solana (SOL), Cardano (ADA), BNB, and BUSD stablecoins. However, experts believe Bitcoin and Ethereum are highly decentralized to be considered unregistered securities under the Howey test.
Moreover, there is no single central body that can claim control of Bitcoin with Ethereum registering a high level of decentralization following the transition from a proof-of-work (PoW) to a Proof-of-Stake (PoS) consensus mechanism.
Additionally, experts argue that the crypto market is solving a unique market challenge that involves opening up global markets through fast, secure, and scalable transfer of value. For many years, the transfer of value has been running under siloed infrastructure that has proved to be expensive for the user and the institutions themselves.