The single most consequential legal question in US crypto policy is deceptively simple: is a given token a “security”? The answer decides which federal agency has jurisdiction, what disclosures apply, and whether an exchange can legally list it to US retail customers. The tool regulators and courts use to answer that question is nearly 80 years old — the Howey test.
Where the Howey test comes from
The test takes its name from SEC v. W.J. Howey Co., a 1946 Supreme Court case that had nothing to do with digital assets. Howey sold parcels of a Florida citrus grove bundled with a service contract to cultivate and market the fruit for the buyer. The Supreme Court held that this arrangement was an “investment contract,” and therefore a security, even though no stock certificate was ever issued. The Court’s reasoning is the template regulators still apply to crypto tokens today.
The four-part test
Under Howey, an arrangement is an investment contract — and therefore a security — if it involves:
- An investment of money. The buyer puts capital (cash, another crypto asset, or anything of value) into the arrangement.
- In a common enterprise. Investors’ fortunes are typically tied together, often to the fortunes of the promoter.
- With a reasonable expectation of profits. Buyers are betting on gains, not just acquiring something to consume or use immediately.
- Derived from the entrepreneurial or managerial efforts of others. The profits are expected to come mainly from a promoter’s or developer’s work, not the buyer’s own labor.
The Securities and Exchange Commission’s own investor-education arm summarizes the test in plain language on Investor.gov. All four elements generally need to be present; no single factor is decisive on its own.
How the SEC has applied it to crypto
The SEC first applied Howey to a token sale at scale in its 2017 Section 21(a) Report of Investigation into “The DAO,” a token-based fundraising vehicle built on Ethereum. The Commission concluded that DAO tokens met the Howey test and were securities, and it put the market on notice that a token being “digital” or built on a blockchain does not exempt it from securities law. The original SEC press release on the DAO Report remains one of the foundational documents in crypto securities law.
For several years afterward, SEC staff relied on a 2019 staff document, the “Framework for ‘Investment Contract’ Analysis of Digital Assets,” to walk through how Howey’s factors map onto token sales, secondary trading, and network development. That framework has since been withdrawn.
The 2026 update: a joint SEC-CFTC interpretation
On March 17, 2026, the SEC and CFTC jointly issued a new interpretive release, “Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets,” which superseded the withdrawn 2019 framework. The release — published in the Federal Register and on SEC.gov — introduces an updated token taxonomy and revisits how Howey’s “efforts of others” prong applies as a network matures and decentralizes over time. It followed the SEC’s Crypto Task Force, established in January 2025 under then-Acting Chairman Mark Uyeda, and reflects continued coordination between SEC Chairman Paul Atkins and CFTC Chairman Michael Selig under their broader “Project Crypto” initiative.
The practical upshot: the four-part Howey test itself hasn’t changed — it’s Supreme Court precedent, not something an agency can rewrite — but how regulators apply it to token sales, airdrops, staking rewards, and secondary-market trading is an active, evolving area, and the analysis can differ meaningfully depending on how centralized or decentralized a network is at a given point in time.
Practical examples courts have weighed
Two federal cases illustrate how Howey gets applied outside of SEC staff guidance. In SEC v. Kik Interactive (2019-2020), a federal court in the Southern District of New York found that Kik’s 2017 sale of its Kin token was an unregistered securities offering, reasoning that buyers were pooling money into a common enterprise and expecting profits from Kik’s efforts to build out a Kin ecosystem. In SEC v. Telegram Group (2020), a federal court in the same district blocked the planned distribution of Telegram’s “Gram” tokens, again applying Howey to conclude the arrangement was effectively an unregistered securities sale. Both cases are public court records and remain widely cited precedent for how a US court, not just SEC staff, approaches the test.
How to think about a token’s status as a user, not a lawyer
You don’t need to run a full Howey analysis before buying anything, but a few practical signals can help you understand why an asset trades the way it does in the US. Assets with a single identifiable promoter still actively marketing future price appreciation, a fixed or capped supply held heavily by an insider team, and no meaningful decentralized governance tend to sit closer to “security-like” in regulators’ eyes. Assets with no controlling company, broad and diffuse ownership, and mature, permissionless networks — the profile regulators have pointed to for Bitcoin, and increasingly for other large, decentralized networks — tend to sit closer to “commodity-like.” None of this is a bright line, and the SEC’s 2026 framework itself acknowledges that a token’s status can be fact-specific and can change as a network matures.
Whether a token is treated as a security affects which exchanges can list it for US customers, what disclosures a project must make, and which federal agency (the SEC for securities, the CFTC for commodities and their derivatives) has enforcement authority. It does not, by itself, tell you anything about whether a project is well-run or whether its price will rise or fall.
The bottom line
Howey is old law applied to new assets, and it is still the operative test the SEC uses today, even after the 2019 framework’s withdrawal and the 2026 joint interpretation. If you want to go deeper on how the four-part test is applied step by step, see our companion guide on investment-contract analysis, step by step, and for the broader jurisdictional picture see CFTC vs SEC: who regulates which crypto assets.
Not financial advice. This guide is educational and explains how a rule, market, or process works. It is not a recommendation to buy, sell, or hold any asset, and Crypto News US does not know your financial situation. Crypto assets are volatile and can lose value quickly; do your own research and consider talking to a licensed financial adviser before making decisions.
Frequently asked questions
Is Bitcoin a security under the Howey test?
US regulators, including the CFTC, have consistently treated Bitcoin as a commodity rather than a security, largely because there is no central promoter whose managerial efforts purchasers are relying on for profit. See our glossary entry on the Howey test for the underlying framework.
Does the Howey test only apply to initial token sales?
No. Regulators have applied Howey-style analysis to the original sale of a token as well as, in some cases, ongoing arrangements like staking-as-a-service programs, where the question is whether the arrangement itself is an investment contract.
Where can I read the actual legal text?
The original 1946 opinion is public court precedent, and the SEC’s current interpretive approach is published in the Federal Register. Investor.gov’s Howey test glossary entry is a good plain-language starting point.
Frequently asked questions
Is Bitcoin a security under the Howey test?
US regulators, including the CFTC, have consistently treated Bitcoin as a commodity rather than a security, largely because there is no central promoter whose managerial efforts purchasers are relying on for profit.
Does the Howey test only apply to initial token sales?
No. Regulators have applied Howey-style analysis to original token sales as well as, in some cases, ongoing arrangements like staking-as-a-service programs.
Where can I read the actual legal text?
The 1946 Howey opinion is public court precedent, and the SEC's current interpretive approach is published in the Federal Register as of March 2026.
Last updated August 12, 2026
Regulation Reporter at Crypto News US, covering SEC and CFTC enforcement, stablecoin legislation and the state licensing fights, from Washington, D.C.
