The bitcoin and altcoin market has largely not found legal footing. That’s why their securities status is still unclear. Exchanges and crypto developers are cautious about operating within the law in various financial jurisdictions. So, which cryptocurrencies will not be able to emphasize securities. Here are those 5 altcoins.
What is the Howey Test?
The SEC proposed the Howey Test to determine which coins qualify as securities. This test reveals that for something to be classified as a security, it must involve “investing money in a joint venture with reasonable expectation of profits from the efforts of others.” Let’s now apply the Howey Test to the Bitcoin and altcoin market. What are the criteria:
- Investing in Money: Cryptocurrencies pass this criterion because investing in the Bitcoin and altcoin market involves money.
- A Joint Venture: This criterion is met to some extent. For example, in crypto lending services, customers lend their money with the expectation of a fixed or variable profit depending on how an exchange uses it.
- Profit prospect: While many altcoin investors aim to make a profit, there are exceptions, such as stablecoins, which are used as a store of wealth rather than a profit, and are classified as a currency rather than a security.
- Efforts of Others: Cryptos here often fail the test. Because there is usually no third party involved to enable investors to make a profit. This is more about collective market sentiment and investor activity. However, from time to time, due to the involvement of third parties, certain instances such as stablecoins and crypto staking and lending services may pass this test.
Now mixed results are emerging. Despite these guidelines, confusion remains as to which Altcoin group the SEC’s criteria should label as securities. Conversely, commodities are basic, interchangeable goods used by trade that can be substituted for other goods of a similar type. Some cryptos, notably Bitcoin, have been considered commodities. Because a particular asset has not issued it, and its values are not dependent on the performance of an underlying company.
Securities definition not possible for 5 Altcoins
Of course, the altcoin Ethereum is in the first place. The SEC has previously stated that Ether is also not a security. Because he explained that the Ethereum network is also not centralized enough. In second place is DOT. The U.S. Securities and Exchange Commission (SEC) has not officially declared Polkadot a non-security. The Web3 Foundation, which is responsible for the development of the Polkadot network, argues that DOT does not meet the definition of a security under US law.
In third place is Ripple’s XRP. The SEC has been in a legal battle against Ripple, the company behind altcoin XRP, since 2020. The SEC had claimed that Ripple engaged in an unregistered sale of securities (XRP). Oddly enough, XRP is nowhere mentioned on the SEC’s list of security coins in the lawsuit. That’s why XRP tokens are on the rise once again. The coin experienced a massive price increase in Q2 2023, reaching around $0.50.
Other altcoins
In fourth place is altcoin EWT. Energy Web Chain is not recognized as a security by the SEC. EWT has followed the necessary compliance measures to determine its non-security status. Energy Web Chain and SEC work together at conferences and events.
cryptocoin.com Stacks (STX) ranks fifth. Hiro, formerly known as Blockstack, stated that the Stacks token (STX) is no longer a security. That’s why he announced that Hiro would stop submitting annual reports to the SEC. The company says that previously Stacks was treated as a security “due to an abundance of safeguards.” Now the company believes it has fulfilled its promise to decentralize the Stacks ecosystem. Because there is no central governing authority behind the broader Stacks ecosystem.
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