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Is Crypto truly a security?


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Amid the rigorous regulatory scrutiny greeting the crypto industry, there have been numerous arguments about how cryptocurrencies should be classified. The bone of contention has been whether these assets should be regarded as security or not. Over the years, scores of stakeholders in the industry dominated the airspace with their perspectives on the issue.

More so, there are numerous lawsuits as regards the matter, involving crypto firms and regulators. While regulators have continued to argue that crypto offerings are securities and should be regulated by the laws guiding any assets that fall in that category, crypto firms are saying otherwise. Amid the ongoing development, this article seeks to explain if truly crypto is a security or not. However, to do this, it is important to first define security.

What is a Security?

According to findings, a security is any financial asset that is tradable or has a monetary value. Howley Test highlighted four benchmarks for any product to qualify as a security. The Howley Test emanated from a Supreme Court ruling in 1947 in a case between the SEC and WJ Howley company over an orange plantation.

According to the Howley Test, One of the criteria is that it involves an investment of money. This thus means any form of product or offering that requires the investment of money can fall under security. Another criterion is that for an offering to be classified as a security, it must be profit-oriented. This means that the offering must come with an opportunity to allow investors to amass profit. More so, an investment must be in a common enterprise to qualify as a security. Also, profits generated in this kind of investment are usually generated through the commitment of other investors.

Meanwhile, the legal definition of a security varies by country. In the United Kingdom for instance, securities deal with equities, debentures, alternative debentures, units, warrants and many more. While in the U.S., it represents just any tradable asset with a notable value. The Securities and exchange commission in the country regulates securities. Today, the chairman of the agency, Gary Gensler leveraged the insights from the Howley Test to affirm that major crypto assets are securities.

Cryptocurrency; Security or Commodity?

Cryptocurrency can either be a security or a commodity depending on regulatory provisions. However, at one point, Gary Gensler, former CFTC Chair who is now the SEC boss, provided some guidelines to explain why most virtual tokens are securities. Though In 2018, when Gary Gensler was a senior lecturer at MIT Sloan and a senior adviser at the MIT Media Lab, he admitted that crypto can either be a security or commodity depending on the structure of each project.

In his explanation, he stated that tokens that offer holders an ownership stake, are securities. He argued that such tokens are instrument of investment. He added that those who acquire them had the intention of gaining profits in the long run. 

By Gensler’s explanation, tokens that offer holders voting rights that are like stakes in a Decentralized Autonomous Organization are securities. Owing to that, tokens like Matic, Cardano, ApeCoin, Aave, and many others are securities. By his explanation, Gary Gensler only spared BTC as the only cryptocurrency that is a security. Accordingly, he referred to BTC as a commodity because it came into existence as a reward for people who validates a distributed platform.

Meanwhile, by the provision of the Howley Test, the first three of its criteria are enough premises to qualify cryptocurrency as a security. However, based on the fourth criterion, cryptocurrency definitely doesn’t fit into this category. This is due to the decentralized nature of cryptocurrency and how efforts toward a crypto project aren’t concentrated in an individual or entity. 


Cryptocurrency at this stage is not a security. Only a clear-cut regulatory provision can define or set standards for crypto to be regarded as either a security or commodity. More so, the absence of a regulatory framework will only continue to intensify the debate. Thus, creating more confusion about what the innovation is actually about.

As it is, all hopes are on the SEC Vs Ripple lawsuit. The ruling of this case will surely help in providing good precedence in determining whether crypto is a security or commodity. Nevertheless, the ruling of the SEC vs Ripple case will only address part of these questions. As earlier stated, only a clear-cut regulation will define the appropriate body or agency that can exercise oversight functions over cryptocurrency.

Olaleye Komolafe
Olaleye Komolafe
Olaleye is a professional reporter with vast experience in web3, cryptocurrencies, and NFT journalism. He enjoys writing about the evolving metaverse sphere and the prevalence in the crypto sphere. Notably, some of his contents have been published in numerous international publications. Away from the crypto world, Olaleye is a political scientist and a lover of football

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