Home » Currency News » What are the Howey test and its implications for cryptocurrency?

What is the Howie test?

Howell test is a kind of legal and regulatory test used in the United States to determine whether a transaction is eligible for an investment agreement, so it is called securities according to federal laws and regulations. The test was developed by the U.S. Supreme people's Court in SEC v. W.J.Howey Co. (1946) and has since been used in many cases to determine whether various financial sector plans and offerings are securities.

According to the Howey test, a transaction must include cash investment in the group enterprise, and it is estimated that all profits will come from the diligence of the group company. If a transaction meets this requirement, it is called a security, in which case it is bound by federal securities laws and regulations.

Master safety specifications

The test involves three key norms that must be met in order to make the transaction qualified for securities, as shown below:

The first basis is investment and financial management, which means that participants in trading transactions must explore with the money they earn. It mainly includes financial and physical investment.

The second basic requirement is to share the company, which means that the accounting success of investors must be linked in some way. This can be verified by giving investors centralized resources or relying on third parties to manage their investment.

The third norm should be completely derived from the expectations of other people's diligent returns, which means that investors rely on other people's project investments to generate returns. For example, this may include the benefits of third-party managers or the diligence of a particular group of companies or individuals.

The impact of Howie testing on cryptocurrencies: is it very secure or dangerous?

The impact of Howey testing on cryptocurrencies is extremely important because it provides a framework for determining whether specific cryptocurrency products should be classified as securities in accordance with US laws and regulations. If a cryptocurrency issue meets the requirements outlined in the Howey test, it can be treated as a security and subject to federal securities laws.

This will have a great impact on login password companies and investors, as violation of federal securities laws may result in penalties, legal and regulatory actions and damage to the credibility of the company. To ensure that they comply with federal securities laws, cryptocurrency companies should carefully consider Howey testing before creating goods.

About: login password and Security: a New explanation of Howie testing in the United States

An OTP that does not pass the Howey test is called a Utility OTP, and investors can get future products or services, or they can redeem them with a discount fee. Although utility dynamic passwords are not generally regarded as securities, SEC shows that the existence of public utility dynamic password framework does not necessarily mean that a project is not classified as securities.

In the final analysis, the impact of Howey testing on cryptocurrencies will depend on how regulators choose to combine the test with practice, and how cryptocurrency companies choose how to build their product structures to comply with federal securities laws.

Comply with the Federal Securities Act: what cryptocurrency companies need to know

Cryptocurrency companies need to understand the federal securities laws of the United States to ensure compliance with such laws and regulations. Here are some key things to keep in mind:

  • The Securities Act applies to encrypted currencies: the American Federation of Securities Trading (Securities And Exchange Commission) treats several types of encrypted currencies as securities. This means that cryptocurrency companies should comply with federal securities laws, including registration and publication provisions.
  • Token sales may be bound by securities laws: if cryptocurrency companies sell tokens to society in exchange for cash or other property, it can be called announcing a securities sale. As a result, the company will be forced to comply with securities standards, including filing with the American Securities Trading Association.
  • Be sure to disclose the use of assets: cryptocurrency companies must prove their financial objectives when raising funds through securities sales. The company also needs investors to know how this large amount of money is spent.
  • Trading websites may be bound by securities laws: stock exchanges may include encrypted currency trading sites where users can trade tokens. If so, the site will have to submit registration documents to SEC and comply with other securities policies and regulations.
  • Penalties for violations are likely to be stricter: penalties for violations may be imposed: if cryptocurrency companies violate federal securities policies and regulations, they may cause serious harm, such as penalties and legal acts.

Therefore, cryptocurrency companies should understand and abide by the federal securities laws of the United States. It mainly includes knowing whether their tokens are called securities, the usefulness of publishing assets, and their compliance with declaration and disclosure regulations.

Related News

MicroStrategy to offer Bitcoin Lightning solutions in 2023

MicroStrategy’s Lightning Network solutions include Satoshi-powered incentives for marketing and website cybersecurity.

BTC price preserves $16.5K, but funding rates raise risk of new Bitcoin lows

Bitcoin is fooling no one with its current behavior, with bearish takes everywhere and the yearly close just two days away.

How to buy Bitcoin in Australia?

Buying Bitcoin (BTC) in Australia can be done through crypto exchanges, ATMs and by trading with other parties.

Which celebrities joined and left crypto in 2022?

Sports players, movie stars, models, musicians; the gang's all here, with more celebrities entering the blockchain space with each passing month. Will that trend continue in 2023?