Howey test: why the SEC bans coins and who can survive

Everyone has heard about the SEC, everyone is complaining about the regulators — but few understand the principle by which the American regulator decides: “This is a security, we prohibit it” or “This is okay, trade freely.”

The answer is one: Howey test, the decision of the US Supreme Court in 1946. This is not just a boring law — it is a real cheat code that determines the fate of crypto projects worth billions of dollars.

Four points that decide everything

According to the courts, an asset is considered a security ( and falls under regulation ) if all four conditions are met simultaneously:

1. Monetary contribution — you invest fiat or crypto

2. Joint venture — your success is tied to the success of other participants in the system (you are not the only one trading)

3. Expectation of profit — you buy not for use, but to earn on the price increase

4. Profit depends on the efforts of others — the development team, marketing, roadmap — all of this influences the price, not the user themselves.

How it works in crypto

Take any ICO from 2017. Investors invested money → hoped that the team would create a cool project → the price would soar. All four points matched. SEC says: “This is a security, licenses are needed.”

And what about Bitcoin? It is used as a means of payment, there is no central team that develops it at the expense of investors. Therefore, Bitcoin is a commodity, not a security.

XRP, ALGO, Ethereum — this is a gray area. Which are used as means of payment in their ecosystems, and which are speculative assets. That’s why the SEC constantly sues Ripple but leaves Ethereum alone.

Why this is important for prices

If the SEC grants the token the status of a security:

• Exchanges deregulate the coin ( price drops by 40-70% )
• Only professional investors will be able to trade
• The project is forced to obtain licenses (expensively and slowly)

Therefore, large projects try to prove to the SEC that they are utility, not investment schemes.

TL;DR: If you are buying a coin not for use, but to make a profit from it, and its fate depends on the development team — it may be a security under the Howey test. And then the regulators are coming.