Earlier this week, Brian Armstrong, Co-Founder and CEO of crypto exchange Coinbase, shared his thoughts on crypto regulation in the U.S.
In a blog post published on 19 December 2022, Armstrong said that, in the wake of the collapse of crypto exchange FTX, the U.S. and other major jurisdictions needed to take the aforementioned steps to “restore trust”:
- “Create regulatory clarity for centralized actors“
- “Enforce a level playing field“
- “Let innovation happen in decentralized crypto“
With regard to the issue of regulatory clarity, Armstrong stated:
“Perhaps the most complex point that needs clarity is around which crypto assets are commodities and which are securities. The CFTC and SEC have been debating this issue in the U.S. for several years now, but unfortunately they haven’t provided any clarity to the market. At this point, it seems clear that Congress needs to step in and pass legislation. This can be done with an updated version of the Howey test that applies to crypto tokens that may fall under the definition of an investment contract.“
Here’s the Coinbase CEO’s proposal for a modern version of the Howey test that could help determine whether a particular cryptoasset is a commodity or a security:
“Was there an investment of money? If the crypto asset issuer hasn’t sold the asset for money for the purpose of building a project, it’s not a security.
“Is the investment in a common enterprise? For a crypto asset to be a security, it must be controlled and operated by a centralized organization like a company. If a project has become sufficiently decentralized, it’s not a security.
“Is there an expectation of profit? If the primary purpose of the crypto asset is some other form of utility (voting, governance, incentivizing actions of a community, etc) then it is very unlikely to be considered a security.
“Are the profits to be derived primarily from the efforts…
