Howey Test

The Howey Test is one of those legal things that might sound a bit dry, but it’s actually pretty important if you’re involved in the world of cryptocurrency. It’s a test that comes from a 1946 Supreme Court case in the U.S. called SEC v. W.J. Howey Co., and it’s used to figure out whether something should be considered a security, which means it would be subject to all sorts of regulations.

The test is pretty straightforward, though. It looks at four main things: (1) Is there an investment of money? (2) Is the investment in a common enterprise? (3) Are you expecting to make a profit? (4) Are those profits coming mostly from the efforts of someone else? If the answer to all four is yes, then what you’re dealing with is likely a security, and it needs to be regulated as such.

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