I am sure many of us over the last few days have been asking ourselves is our portfolio a security or a commodity and there are no easy answers to this.
The Howie Test
What are the 4 elements of the Howey test?
The Howey test consists of four elements often referred to as prongs. According to the test, a transaction is a security if it is (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profit, or (4) to be derived from the efforts of others
This is the question for a large percentage of crypto as the arguments for and against can confuse the issue even more. The problem is the law dates back to 1933 and crypto is a whole new asset class that was not around when the laws were made. You can understand as most crypto involve some type of investment so tick for point 1, but the next 3 points can be argued for and against.
The 67 crypto's named as securities by the SEC this week are obviously concerned, but it was more concerning the way the SEC is handling the situation. Hitting both Coinbase and Binance US with lawsuits for allegedly listing unregistered securities. Just last month Gensler couldn't answer a simple yes or no whether Ethereum was a security or a .
commodity.
I don't see this as whether this is a security or commodity case as I believe the US thinks if they can drag this on like they have done with the XRP case this will buy them time to stall the inevitable. What would scuttle their plans is if XRP wins their case which looks highly likely. This would set the precedent down being the first crypto case to beat the SEC at their own game.
Coinbase and Binance are not going to settle like Kracken did as they will fight taking the case to court. Maybe they were trying to call their bluff hoping for an out of court settlement but that kind of result does not favor the crypto industry so they have to fight and win.
When you have a giant institution like Grayscale arguing with the SEC stating that Filecoin (FIL) is a commodity and not a security. Grayscale backed down as they wanted to launch a FIL Trust product. Nobody wants to be on the other side of the fence with the SEC as they can make life tough and why many settle their disputes out of court and are rarely challenged. Crypto is a different animal however as each project would fight in court if required. That is not going to happen as we are not going to see 67 court cases as that would take decades. One precedent would suffice and why XRP is very important plus the hope that the republicans get into office next year.
Regulation is happening around the world with Hong Kong happy to list cryptocurrencies that the SEC would call securities. The likes of Solana, Matic and Cardano are just some of the "securities" welcome on the Hong Kong crypto exchange. This sends investors another message and no wonder why there is so much confusion in the market place.
Personally I think the SEC is digging a deeper hole it will not be able to get out of as they have taken on crypto and not just Binance and Coinbase. I do think the SEC has overstepped it's mark and bitten off more than it can chew as next years elections are not going to be about the normal stuff like health or the economy, but how crypto's are regulated. What we know is this Government would like to push through their CBDC as a priority stalling crypto in the meantime. That is the real agenda at play here and they are doing what China did 3 years ago by basically banning crypto. They haven't come out and said this, but their actions are sending that type of message.
I find this situation fascinating and sickening at the same time as firstly there is no clarity whatsoever and everyone is investing in the dark not knowing if they are doing the right thing or not. I will not be changing my strategy over the coming months as we all know how manipulative governments can be.
Posted Using LeoFinance Alpha
Commodity I think was original intention. Security to govern over cutting circulation, keep watching closely many more players coming out the woodwork.
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Even though the Howie Test is a relatively good standard, I do believe that Crypto is a lot more complex and has additional aspects that require more than the Howie Test to establish an accurate categorization. However, it's the best place to start... but there definitely needs to be continuation, in my opinion.