Cryptocurrencies and open blockchain networks have made possible a new way to raise money to develop and maintain novel products and services—whether devices on the Internet of Things, new cloud services on the Internet, or even financial products and investments. This unprecedented form of crowdfunding, colloquially known as "Initial Coin Offerings," raises various legal and policy questions, and developers and investors are eager to have answers to these questions so that they can safely take advantage of this innovative model.
The SEC recently issued an investigative report concluding that some crypto-tokens can be securities. What the SEC did not say is that all tokens are securities. They correctly find that a facts and circumstances test, known as the Howey test, is the appropriate rubric for determining whether a particular crypto-token sale is a securities issuance. However, in its report the SEC only applies the test to the facts and circumstances surrounding one particular crypto-token project that was widely understood to likely be a security.
Applying the same facts and circumstances test to other tokens should find that some do not fit into the definition of securities, particularly tokens with an underlying utility rather than a mere speculative investment value. In an op-ed for American Banker, Coin Center research director Peter Van Valkenburgh explains why this is the case and hopes that clear guidance from the SEC to that effect will be forthcoming.