Fritz Charles

The SEC releases guidance on whether digital assets are securities

In the Blockchain industry, there has been much chatter about regulations. Some say they are needed, while others say they aren't. Many say the absence of clarity is what is holding the asset class back.

During the 2017 bullrun, crypto investors invested in many different crypto assets that could be deemed securities. Given the absence of firm guidance from the SEC (Securities and Exchange Commission), it’s been a guessing game. To be safe, many crypto asset issuers have avoided U.S. investors entirely, which left most American investors unable to invest in ICOs at all. Today, the SEC ended its silence and released the “Framework for ‘Investment Contract’ Analysis of Digital Assets.”

In this document, they break down the rules under which an ICO can be labeled a security, relying on the Howey Test framework.

This document addresses the following elements of the Howey Test:

The Investment of Money

The SEC says that most ICOS satisfy this requirement as the digital asset is purchased or acquired in exchange for fiat or another digital asset.

Common Enterprise

The SEC says that common enterprises usually exist when it comes to digital assets,

Reasonable Expectation of Profits Derived from Efforts of Others

The SEC says that there should be a consideration of whether there is a reasonable expectation of profits. They refrain from saying if most digital assets pass this test or not, but go into detail over the various parameters.

Here is the full document: SEC DLT Framework

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