SEC's Cryptocurrency Proposal Fails to Eliminate Legal Uncertainty of the Howey Case

Joseph Hall, a partner at the prominent U.S. law firm Davis Polk & Wardwell, pointed out that the SEC's "Cryptocurrency Regulation" proposal released on August 18 establishes a customized framework for cryptocurrency issuance, but still fundamentally relies on the concept of "investment contracts" from the 1946 Howey case (SEC v. W.J. Howey Co.), failing to eliminate legal uncertainty. Hall used the example of oranges from the Howey case, noting that the Supreme Court determined that "investment contracts" are considered securities, not the oranges themselves. Once the oranges enter circulation, dealers do not need to trace their origin. In contrast, the SEC's new proposal requires that secondary market trading of cryptocurrency assets be regarded as securities transactions until the issuer completes or abandons "key management tasks" and submits certification. This means that tokens on the same blockchain may have different legal attributes due to different minting methods and distribution channels, and the blockchain itself does not record the legal theory of each original distribution, making it difficult for trading platforms and intermediaries to judge. Hall believes that the SEC should directly establish rules based on objective conditions, rather than making a 80-year-old fallback clause the core of a permanent framework.

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