Clarity is paramount, and more of it will benefit all involved, most notably holders and potential holders of crypto assets, said Glenn Williams Jr. The Howey Test is a public, transparent definition and application of what constitutes a security, using four prongs. If an asset meets all four prongs of the Howey Test, then it’s a security, and is thus required to register with the SEC, under requirements of the Securities Act of 1933 and 1934.
The SEC’s Framework of Investment Contract Analysis of Digital Assets whitepaper implies that digital assets satisfy the first two prongs. The third and fourth prongs are where things get interesting, particularly for Bitcoin (BTC) and Ether (ETH). The SEC’s whitepaper on digital assets carves out responsibilities performed and expected to be performed by an associated person (AP), rather than an unaffiliated, dispersed community of network users. The SEC also stated that AP’s of securities create or support a market for or the price of the digital asset, including its creation or issuance, or control of supply.
Bitcoin and Ether maxis should find comfort within these areas. Bitcoin and Ether currently account for close to 70% of all of the cryptocurrency market’s capitalization. Since the SEC’s announced suit against Binance, BTC’s market cap dominance has increased 3%. ETH’s market share has fallen from 20.52% to 20.1% with Bitcoin fueling the decline. In the aggregate their combined market cap dominance increased by approximately 2%, while their correlations between each other rose 6%.
In an odd way, the Howey Test’s seeming inapplicability is what may ultimately provide confidence for newer investors and leave the SEC focus on a shrinking piece of the pie. David Lawant of FalconX added, Bear markets tend to end not with a bang but with a whimper. Indifference and apathy are the typical defining signatures of the last stage of the bear market psychology framework.
Judging from the state of crypto market liquidity, we’re deep in the fifth stage of grief territory. But some of the early signals of potential stabilization, or even a timid reversal, are interesting. Sustained recoveries in crypto market liquidity have been early confirmation signals of bull markets in the past two cycles.