Understanding the Howey Test and the Exclusion of Bitcoin as a Security

15.06.23 03:01 AM Comment(s) By Stormrake

The recent lawsuits filed by the SEC against Binance and Coinbase have sparked discussions about the classification of cryptocurrencies as securities. The Howey Test, a legal framework used by the SEC to determine whether an investment qualifies as a security, plays a crucial role in these debates. While the SEC argues that several tokens meet the criteria outlined in the Howey Test, it is important to note that Bitcoin stands apart from this classification. Additionally, Bitcoin's decentralized nature poses unique challenges for regulatory bodies. This article delves into the Howey Test, the exclusion of Bitcoin as a security, and the implications of its decentralized structure.

The information contained here is for general information only. It should not be taken as constituting financial advice. Stormrake is not a financial adviser. You should consider seeking independent financial advice prior to making any personal investments.

The Howey Test: An Overview

The Howey Test, derived from the landmark court case SEC vs. W.J. Howey Co., establishes criteria for determining whether an investment qualifies as a security. These criteria include an investment of money, in a common enterprise, with an expectation of profit derived predominantly from the efforts of others. The SEC argues that the 19 tokens mentioned in the lawsuits against Binance and Coinbase meet these criteria, thereby making them subject to securities regulations.

Bitcoin's Unique Status

One notable exception from the list of tokens subject to scrutiny is Bitcoin. Unlike the tokens in question, Bitcoin holds a distinct position when it comes to securities regulation. This is primarily due to two factors: the absence of pre-mining and the lack of an expectation of benefit during its creation. Bitcoin's decentralized and open nature, as envisioned by its anonymous creator or creators using the pseudonym Satoshi Nakamoto, sets it apart from tokens that were pre-mined or created with the expectation of profit.

Decentralization and Regulatory Challenges

Another key aspect of Bitcoin's distinction lies in its decentralized structure. Unlike traditional assets and many other cryptocurrencies, Bitcoin does not have a centralized authority, CEO, or headquarters. While this decentralization is one of Bitcoin's core strengths, regulatory bodies like the SEC are powerless to impose "regulation by enforcement". Since there is no specific entity to hold accountable or communicate with, there is no way to sue bitcoin or harm the founder.

Bitcoin's Impact on the Crypto Industry

Bitcoin's exemption from being classified as a security carries significant implications for the broader cryptocurrency industry. As the first and most well-known cryptocurrency, Bitcoin's status as a non-security reinforces its position as a separate and distinct asset class. This has helped solidify its appeal as a decentralized and censorship-resistant form of digital money.

List of Cryptocurrencies named as Securities by the SEC

Consider your investments and talk to your broker if you have any of the following:

Ripple (XRP)
Telegram’s Gram (TON)
LBRY Credits (LBC)
OmiseGo (OMG)
Algorand (ALGO) 
Naga (NGC)
Monolith (TKN)
IHT Real Estate (IHT)
Power Ledger (POWR)
Kromatica (KROM)
DFX Finance (DFX)
Amp (AMP)
Rally (RLY)
Rari Governance Token (RGT)
DerivaDAO (DDX)
XYO Network (XYO)
Liechtenstein Cryptoasset Exchange (LCX)
Kin (KIN)
Salt Lending (SALT)
Beaxy Token (BXY)
DragonChain (DRGN)
Tron (TRX)
BitTorrent (BTT)
Terra USD (UST)
Luna (LUNA)
Mirror Protocol (MIR)
Mango (MNGO)
Ducat (DUCAT)
Locke (LOCKE)
EthereumMax (EMAX)
Hydro (HYDRO)
BitConnect (BCC)
Meta 1 Coin (META1)
Filecoin (FIL)
Binance Coin (BNB)
Binance USD (BUSD)
Solana (SOL)
Cardano (ADA)
Polygon (MATIC)
Cosmos (ATOM)
The Sandbox (SAND)
Decentraland (MANA)
Axie Infinity (AXS)
Paragon (PRG)
AirToken (AIR)
Chiliz (CHZ)
Flow (FLOW)
Internet Computer (ICP)
Near (NEAR)
Voyager Token (VGX)
Nexo (NEXO)


The recent SEC lawsuits against Binance and Coinbase have brought the classification of cryptocurrencies as securities into the spotlight. While the Howey Test serves as the legal framework for determining securities status, Bitcoin remains exempt due to its unique attributes. Its decentralized nature and absence of pre-mining and expectation of benefit during its creation distinguish it from tokens subject to regulatory scrutiny. As the cryptocurrency industry moves forward, it is crucial to strike a balance between regulatory clarity and fostering innovation, ensuring a thriving and investor-protected environment for all stakeholders.

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No Advice Warning 

The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.
Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.


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