Cryptoassets and the Howey Test: A US Legal Overview

What Is A Security?

In U.S. law, securities include shares, bonds and investment contracts. A financial asset having value or being tradable does not, by itself, establish that it is a security.

Examples include corporate stock, government and corporate bonds, and shares in investment funds. Different instruments carry different rights, risks and regulatory obligations.

An offer or sale of securities in the United States generally needs registration or an applicable exemption. Being regulated does not make an investment risk-free.

For crypto assets, three distinctions matter:

+ A crypto asset may lose all its market value.
+ Some tokens are fungible; others, such as NFTs, are not.
+ Crypto-related activities can be regulated even when the asset is not a security.

A token sale is not automatically an IPO, and calling a token a currency or utility token does not settle its legal treatment. The rights offered and the circumstances of a transaction matter.

A limited supply or a claim of decentralization is not, on its own, a legal exemption. The asset and the arrangement through which it is offered need to be distinguished.

The Howey test addresses one category of securities: investment contracts.

What is The Howey Test?

The U.S. Supreme Court established the Howey test in SEC v. W. J. Howey Co. in 1946. It examines the economic substance of an investment arrangement, rather than its marketing label.

An investment contract involves capital committed to a common enterprise, with a reasonable expectation of profits dependent on essential managerial efforts by others.

Here are the four main criteria:

1) Investment of money: An investor contributes value. Payment does not have to be made in fiat currency.

2) Common enterprise: The analysis considers the relationship between the investment and a shared enterprise; merely using a third-party service does not establish this element.

3) Expectation of profits: The terms and promotion of the arrangement matter, not simply whether a buyer hopes that a token price will rise.

4) Efforts of others: Expected profits must depend on essential managerial efforts by others. Nobody needs to guarantee a profit for this element to apply.

These elements must be evaluated together for the specific transaction or scheme. There is no single Howey outcome for all cryptocurrencies.

An asset outside securities law may still be subject to other rules, including those governing commodities, payments or financial crime. The applicable jurisdiction also matters.

So, Are Crypto Assets Securities?

Update, October 26, 2026: There is no universal yes or no. In its March 2026 interpretation, the SEC distinguished crypto assets from investment contracts under which they may be sold. A non-security token can be offered as part of an investment contract, depending on the arrangement.

This is a general explanation of U.S. law, not a legal determination about any particular token.

Sources: SEC crypto-asset guidance; SEC March 2026 interpretation