In a series of tweets, John E Deaton, the founder of Crypto-Law.us, challenged the notion that all altcoins should be considered securities.
Deaton’s comments were prompted by a tweet from The Wolf Of All Streets, who suggested that most alternative crypto-currencies referred as altcoins are likely securities and criticized the SEC for their handling of the matter.
Deaton argued that while most altcoins are initially sold as securities, each sale must satisfy the Howey Test, a legal framework used to determine whether an investment qualifies as a security.
He further pointed out that in the 76 years since the Howey Test was established, there hasn’t been a case where the underlying crypto asset itself has been deemed a security or where subsequent sales satisfied all prongs of the Howey Test.
According to Deaton, the Howey Test is the determining factor, and whether a crypto asset is speculative or has intrinsic value is immaterial. He disagreed with SEC Chairman Gensler’s characterization of altcoins as speculative assets with no intrinsic value, stating that it is irrelevant per the Howey Test itself.
The Role Of Legal Frameworks In Crypto Classification
David Barrera, Co-Founder, and CEO at Enumma joined the discussion, arguing that the Howey Test does not apply to secondary sales of investment contracts in the same way it does to the creation of a security.
Barrera maintained that the focus should be on whether a scheme constitutes an investment contract in the first place, not on the resale of existing investment contracts.
Deaton responded by citing various legal sources, including Aqua-Sonic, to support his stance that the Howey Test must be examined “at the time of the transaction.”
He also mentioned a previous case, LBRY, where Judge Barbadoro explicitly stated that his ruling only applied to direct sales made by LBRY and not to secondary market sales, as Howey was satisfied based on the circumstances surrounding the transaction.
The debate between Deaton and Barrera continued, with Deaton inviting Barrera to read and criticize a brief he had written on the matter.
Barrera, however, argued that Deaton had not provided sufficient legal reasoning or case law to support the notion that each secondary transaction should be reassessed under the Howey Test.
The conversation highlights the ongoing discussion and differing perspectives within the crypto community regarding the classification of altcoins as securities.
As regulators and market participants grapple with these issues, the interpretation and application of existing legal frameworks like the Howey Test remain central to the debate.
Related Reading | SBF Could Face Delays Due To US Gov’s Action-Lawyers