SEC Definition of Security Cryptocurrency

The concept of "security" in the context of cryptocurrencies has been a point of significant debate and regulatory scrutiny. According to the U.S. Securities and Exchange Commission (SEC), a cryptocurrency may be classified as a security if it meets certain criteria established under the Howey Test. This test, derived from a 1946 U.S. Supreme Court case, assesses whether a transaction qualifies as an "investment contract" and, thus, a security. The criteria include an investment of money, in a common enterprise, with an expectation of profits predominantly from the efforts of others. If a cryptocurrency's initial sale or investment fits these criteria, it may be subject to SEC regulation, including registration requirements and compliance with securities laws. This classification impacts various aspects, including the trading, issuance, and overall legal framework surrounding the cryptocurrency in question. The SEC's approach aims to provide investor protection and ensure market integrity, adapting traditional securities regulations to the evolving digital asset landscape.