The year 2017 was a seminal year for the cryptocurrency industry, where markets were bullish pushing the cryptocurrency prices to all-time highs. Many emerging altcoin projects were launched, and the industry saw real growth and development. Tucked in between the Cambrian Explosion of the space, observers also witnessed the many iterations of raising capital via Initial Coin Offerings (ICO).
While there was much to celebrate, a few particular items held the cryptoverse back. The most notable obstacle was the lack of regulatory clarity. During the same time, governments across the globe were forming a mixed opinion on cryptocurrencies, ICOs, and the regulations surrounding the trending topic.
While every nation is struggling to find the right path for regulating cryptocurrencies and activities associated with it, the U.S. Department of Internal Revenue Service (IRS) has already clarified that trading cryptocurrencies is a taxable event.
For the rest of the regulations, all eyes are glued to the United States securities regulator, the SEC, which currently is still relying on the “Howey Test” to determine if cryptocurrencies and tokens fall under the category of securities.
What Is the Howey Test?
The Howey Test came into existence as a result of the 1946 Supreme Court Case which involved the Securities and Exchange Commission (SEC) and the W.J. Howey Corporation of Florida. The case involved a sale and leaseback transaction where the W.J. Howey Company sold citrus grove plots to outside investors to “finance an additional development.”
Nevertheless, the investors of the land had none of the “knowledge, skill, and equipment necessary for the care and cultivation of citrus trees,” and eventually they reached an agreement with Howey whereby the buyers would immediately lease the groves back before Howey would harvest and sell the resulting citrus products.