I. Introduction

Since the introduction of Bitcoin in 2009, the distribution and sale of crypto assets[1] have largely operated without any clear federal oversight.[2] Unburdened by regulatory shackles, the crypto asset total market capitalization has grown to more than $3 trillion.[3] However, a lack of definitive rules in the marketplace has made it susceptible to fraudulent conduct.[4] As such, the Securities and Exchange Commission (SEC) has proposed that crypto-asset purchasers be afforded the protection of federal securities laws.[5] Accordingly, the SEC has attempted to bring crypto assets under its regulatory purview by claiming that some crypto asset transactions are likely securities transactions.[6] However, subjecting crypto-asset transactions to federal securities laws does more than provide plaintiffs with private causes of action.[7] It also subjects industry participants to the SEC’s disclosure regime, which may undermine the decentralized peer-to-peer transaction future that the crypto industry seeks to provide.[8]

A crypto asset is “an asset that is issued and transferred using distributed ledger or blockchain technology.”[9] The asset may be created by an individual or company and utilizes secure technology to conduct peer-to-peer transactions without an intermediary such as a bank.[10] Crypto assets may be created for a wide range of purposes that are not intrinsically investment-related.[11] However, because many crypto assets function as a “store of value,” the SEC has argued that some crypto-asset transactions may meet the definition of an investment contract—a type of security as defined under the Securities Act of 1933.[12] In SEC v. W.J. Howey Co., the Supreme Court defined an investment contract to be “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”[13] Because an investment contract is a type of security,[14] and because some crypto-asset transactions, as the SEC has argued, meet the legal definition of an investment contract, the SEC has claimed that many crypto-asset transactions should be subject to federal securities laws.[15]

This Comment considers the application of the Howey legal framework to crypto-asset transactions. Part II introduces the crypto asset marketplace and defines investment contracts by reviewing the Howey and Forman cases. Part III examines two federal court orders that have applied the Howey framework to crypto-asset transactions. Part IV suggests that the reasoning used in Forman supports an understanding that an investment contract is not offered if a crypto asset is not marketed as an investment opportunity, despite the asset’s capability of appreciating in value.

II. Background on Crypto Assets and Defining an Investment Contract

While many view crypto assets as mere speculative investments, crypto assets generally seek to provide their holders with some type of consumptive benefit.[16] In other words, a crypto asset typically acts as a store of value and allows its holder to perform some type of action on a blockchain.[17] Because many crypto assets provide a consumptive benefit, they are more like commodities than securities.[18] Subjecting such crypto assets to the Commodity Futures Trading Commission’s jurisdiction would likely protect crypto-asset purchasers from fraud without subjecting the crypto asset industry to the SEC’s burdensome disclosure regime.[19] However, even if crypto assets are treated as commodities, Howey makes clear that a commodity may become subject to federal securities laws if the commodity transaction amounts to an investment contract.[20] Because Howey focuses on transactions, an understanding of the crypto asset marketplace is useful.

A. The Crypto Asset Marketplace

The crypto asset marketplace is comprised of a primary and secondary market. In the primary market, a crypto-asset issuer[21] sells a freshly minted token that has not been previously owned by anyone other than the issuer.[22] A crypto-asset issuer is one who creates and sells its crypto asset.[23] Generally, primary market transactions are capital-raising transactions.[24] The purchasers are commonly institutions or high-net-worth individuals but may also consist of ordinary individuals known as retail buyers.[25] Critically, the key aspect of the primary market is the sale of new crypto assets that have not been previously owned by anyone other than the issuer.[26]

Once a crypto asset has been sold in the primary market, any subsequent sale of that crypto asset occurs in the secondary market.[27] As such, the secondary market for crypto assets requires third-party sellers.[28] These sales often occur on crypto trading platforms and typically involve many retail buyers.[29] Unlike primary market transactions, where assets are commonly purchased for investment, crypto assets traded in the secondary market may be purchased for alternative reasons, such as consumption.[30] That is not to say that primary market purchasers cannot buy the asset with a consumptive purpose, but historically, this is less likely.[31]

B. Defining Investment Contracts

The Securities Act of 1933 defines the term “security” to include an “investment contract,” but fails to define an investment contract.[32] Whether an investment contract is offered or sold is critical because if it is offered or sold, the issuer[33] becomes subject to federal securities laws, which may impose registration and reporting requirements and expose the issuer to liability.[34] This Section will review the Howey case and the legal elements necessary to find an investment contract. Additionally, a review of United Housing Foundation v. Forman is required to further understand how a crypto asset’s consumptive characteristic may influence whether a crypto-asset transaction may be properly characterized as an investment contract.

1. SEC v. W.J. Howey Co.

In Howey, the Supreme Court defined an investment contract to be a “contract, transaction or scheme whereby a person [(1)] invests his money [(2)] in a common enterprise and [(3)] is led to expect profits [(4)] solely from the efforts of the promoter or a third party.”[35] W.J. Howey Co. (Howey) was a Florida corporation that owned large tracts of land containing citrus groves.[36] Howey sold the citrus grove tracts to purchasers and offered an optional service contract when a tract was bought.[37] The service contract was a separate agreement for cultivating and marketing the citrus groves and remitting the net proceeds to the buyer.[38] Although the service contract was optional, most of the buyers accepted it.[39] To market this opportunity, Howey made representations to prospective buyers of past financial returns from cultivating orange groves and offered forecasts for future profits.[40] Because Howey offered buyers “an opportunity to contribute money and to share in the profits of a large citrus fruit enterprise managed and partly owned by [Howey],” the Court held that Howey offered and sold investment contracts.[41]

Howey illustrates that anything, even oranges, can become the subject of an investment contract if the facts and circumstances of a specific transaction support a finding of each element of the Howey test.[42] In other words, an ordinary commodity or piece of real property, while not a standalone security itself, may be offered or sold in such a manner that the transaction is characterized as an investment contract.[43] This makes investment contracts unique when compared to traditional securities, such as stocks. A share of stock is a financial instrument that is defined by the Securities Act of 1933 to be a security.[44] Because a share of stock is a standalone security, how a share of stock is sold is irrelevant to finding whether a security is sold. Critically, a share of stock never ceases being a security even after it is sold and later resold in the secondary market.[45]

Contrarily, if any given commodity is sold in such a manner that the transaction is characterized as an investment contract, any future transactions concerning that commodity must be analyzed again to determine if that subsequent transaction amounts to an investment contract.[46] After all, the orange groves in Howey only became the subject of an investment contract because of the facts and circumstances surrounding their sale.[47] Any subsequent sale of the orange groves does not automatically dictate that a securities transaction takes place because the orange groves are not standalone securities.[48] An analysis of the facts and circumstances surrounding the subsequent sale of the orange groves is required to determine if another investment contract is being offered and sold.[49] Analyzing investment contracts on a transaction-by-transaction basis is fundamental to understanding the Howey framework because an investment contract is a “contract, transaction or scheme”—not the underlying asset being offered or sold.[50]

2. United Housing Foundation v. Forman.

In Forman, the Supreme Court, with respect to investment contracts, drew a critical distinction between assets purchased with an expectation of profits and assets purchased for consumption.[51] The Court stated that “[w]hat distinguishes a security transaction . . . is an investment where one parts with his money in the hope of receiving profits from the efforts of others, and not where he purchases a commodity for personal consumption.”[52] In Forman, United Housing Foundation offered and sold “stock” to tenants in exchange for the right to occupy and possess a room in a cooperative housing project.[53] Although the instruments were called “stock,” the instruments were not automatically “stock” for federal securities laws purposes.[54] Instead, the main point of contention was whether an investment contract was offered and sold.[55] A key fact was the United Housing Foundation’s information bulletin, which was available to prospective tenants and emphasized the fundamental nature and purpose of the undertaking.[56] Specifically, the information bulletin did not “seek to attract investors by the prospect of profits resulting from the efforts of the promoters or third parties.”[57] Moreover, even if purchasers saw this as an investment opportunity, the information bulletin suggested that no profits could be made because of the heavy resale restrictions imposed on the stockholders.[58] Because buyers could not derive an expectation of profits, the Court stated that prong three of the Howey test was not met.[59] Because the Howey test was not met, the Court held that United Housing Foundation did not offer or sell investment contracts.[60]

The Court’s holding in Forman is particularly interesting in the context of crypto-asset transactions. In Forman, the Court states that investment contracts are found

[i]n such cases [where] the investor is “attracted solely by the prospects of a return” on his investment. By contrast, when a purchaser is motivated by a desire to use or consume the item purchased—“to occupy the land or to develop it themselves,” as the Howey Court put it—the securities laws do not apply.[61]

As mentioned above, many crypto assets serve a purpose and are intended to be utilized or consumed.[62] For crypto assets that have this consumptive characteristic, one might assume that federal securities laws do not apply to transactions involving such crypto assets if the buyer is purchasing the asset primarily for consumption and not for profit. However, there is a critical fact difference between Forman and many crypto-asset transactions. In Forman, the purchased asset was not capable of providing a profit to the purchaser via the asset’s capital appreciation.[63] For many crypto assets, the asset may provide the purchaser with a profit via the crypto asset’s capital appreciation.[64]

This factual distinction inhibits applying Forman to many crypto-asset transactions because even if a crypto asset is purchased primarily for consumption, the purchased crypto asset may also appreciate and provide a profit.[65] However, this issue provides future federal courts the opportunity to expand upon Forman’s holding to include facts where the underlying asset may provide a profit but where the purchase of the asset is primarily motivated by consumption. Such a holding would be consistent with the general theme of federal securities laws by limiting the application of federal securities laws to only those transactions where the purchaser purchased an asset for investment and not for consumption.[66]

III. The Howey Framework and Crypto-Asset Transactions

A. District Courts Apply Howey to Crypto-Asset Transactions

Many federal district courts have been tasked with applying the Howey framework to crypto-asset transactions. However, as of July 2025, no federal appellate court has applied the Howey framework to a crypto-asset transaction.[67] Because no federal appellate court has applied the Howey framework to a crypto-asset transaction, this Comment will examine two federal district court orders that applied the Howey framework to crypto-asset transactions. The district court orders result from SEC enforcement actions brought against crypto-asset issuers Ripple Labs and Terraform Labs.[68] The district courts came to different conclusions as to whether the crypto issuer offered and sold investment contracts—primarily turning on whether Howey’s third and fourth prongs were met.[69] These district court orders illustrate the novel application of Howey to primary market crypto-asset transactions. Specifically, these cases highlight differing approaches to categorizing transactions by the facts and circumstances they present and that public promotional material may lead buyers to derive an expectation of profits based on the efforts of others.

1. SEC v. Ripple Labs.

In December 2020, the SEC brought an enforcement action against Ripple Labs (Ripple) for selling its XRP token[70] as an unregistered security.[71] XRP is a crypto asset that facilitates transactions on its native blockchain, the XRP Ledger.[72] Ripple created XRP to serve as a bridge currency, allowing for faster and cheaper cross-border payments.[73] The SEC argued that Ripple’s sale of its XRP token was an investment contract under the Howey test.[74] The court, in ruling on a motion for summary judgment, found that Ripple’s sale of XRP to institutional investors (Institutional Sales) amounted to investment contracts, but Ripple’s sale of XRP on public crypto trading platforms (Programmatic Sales) did not.[75]

In Ripple Labs, the court separated Ripple’s primary market transactions into two categories: Ripple’s Institutional Sales and Programmatic Sales.[76] The issue of whether these sales constituted investment contracts primarily turned on Howey’s third and fourth prongs.[77] For Ripple’s Institutional Sales, the court found that the economic reality of the transactions would lead reasonable investors to “understand that Ripple would use the capital received from [the sales of XRP] to improve the market for XRP and develop uses for the XRP Ledger, thereby increasing the value of XRP.”[78] The facts considered were Ripple’s distribution of its promotional material that touted XRP as an investment and Ripple’s commitment to XRP and the development of the XRP Ledger.[79] Furthermore, Ripple’s XRP Market Reports connected XRP’s price and trading to its efforts, and Ripple’s senior leaders echoed similar statements about their efforts to develop more uses for XRP.[80] The court found that these facts illustrated that the economic reality of the Institutional Sales led buyers to derive an expectation of profits based on the efforts of Ripple.[81]

For Ripple’s Programmatic Sales, the court again looked at the economic reality of these transactions.[82] The Programmatic Sales were blind bid/ask transactions to public buyers on crypto asset trading platforms, where purchasers of the XRP token could not have known if their money was going to Ripple Labs or any other seller of XRP.[83] Even if buyers of XRP expected profit, the court concluded that the buyers “did not derive that expectation from Ripple’s efforts . . . because none of the . . . [b]uyers were aware that they were buying XRP from Ripple.”[84] The court reasoned that because Ripple did not know who was buying the XRP, and the purchasers did not know who was selling it, Ripple could not have made any promises that would have led buyers to derive an expectation of profits.[85] With respect to promotional material created by Ripple, there was no evidence that such material was “distributed more broadly to the general public, such as XRP purchasers on [crypto asset trading platforms].”[86] Considering these facts, the court held that Ripple’s Programmatic Sales did not constitute investment contracts because buyers did not derive an expectation of profits based on the efforts of Ripple.[87]

Ripple’s Institutional Sales and Programmatic Sales were both primary market transactions because Ripple, the issuer of the XRP token, was the seller.[88] However, Ripple’s Programmatic Sales are analogous to secondary market transactions that occur on public crypto trading platforms because, had the seller been anyone other than Ripple, the Programmatic Sales would have been secondary market transactions.[89] This has led some courts to misconstrue the court’s holding in Ripple Labs with respect to the Programmatic Sales—claiming that the Ripple Labs court held that secondary market transactions of crypto assets do not constitute investment contracts.[90] This is an incorrect understanding of the Ripple Labs holding because the Ripple Labs court explicitly states that “[it] does not address whether secondary market sales of XRP constitute offers and sales of investment contracts because that question is not properly before the Court.”[91]

2. SEC v. Terraform Labs.

In 2023, the SEC brought an enforcement action against Terraform Labs (Terraform) for violating federal securities laws by offering and selling unregistered securities without an applicable exemption.[92] Similar to Ripple Labs, Terraform conducted primary market sales of its LUNA coin to institutional investors and, more broadly, on crypto-asset marketplaces.[93] The court, ruling on Terraform’s motion to dismiss for failure to state a claim, held that the SEC had adequately alleged that Terraform’s crypto asset sales were publicly distributed unregistered securities in the form of investment contracts.[94]

In Terraform Labs, Terraform “contracted to sell close to 200 million LUNA coins to institutional investors . . . with [Terraform’s CEO] signing the purchase agreements.”[95] Terraform also sold its LUNA coins directly to retail buyers on crypto asset trading platforms.[96] However, the court did not separate the LUNA transactions at issue by their manner of sale.[97] Instead, the court stated that the manner in which Terraform’s LUNA coins were sold was similar regardless of who the purchaser was.[98] Therefore, the court grouped all of Terraform’s LUNA coin sales into one Howey analysis.[99] Specifically, the court stated that “[Terraform] embarked on a public campaign to encourage both retail and institutional investors to buy [its] crypto-assets by touting the profitability of the crypto-assets and the managerial and technical skills that would allow [Terraform] to maximize returns on the investors’ coins.”[100] To support this claim, the court stated that Terraform

coaxed investors to continue purchasing LUNA coins . . . by pointing out the possibility of future investment returns. In particular, [Terraform] said that profits from the continued sale of LUNA coins would be fed back into further development of the Terraform ecosystem, which would, in turn, increase the value of the LUNA coins.[101]

Because Terraform publicly touted the profitability of owning its LUNA coin and led LUNA coin holders to believe that those profits were dependent on the efforts of Terraform, the court found that the SEC adequately pleaded that Terraform sold its LUNA coin as an investment contract for all of its transactions.[102]

3. Analyzing the Ripple Labs and Terraform Labs Orders.

A key difference between Ripple Labs and Terraform Labs is whether the court separated the issuers’ sales of their crypto asset by the manner in which the asset was sold.[103] Specifically, the Ripple Labs court separated Ripple’s Institutional Sales from its Programmatic Sales, recognizing the difference in facts and circumstances for each set of transactions.[104] Then the Ripple Labs court applied the Howey test to each set of transactions separately—first applying Howey to Ripple’s Institutional Sales and then applying Howey to Ripple’s Programmatic Sales.[105] Conversely, in Terraform Labs, the court declined to separate Terraform’s LUNA sales based on the specific facts and circumstances present for each set of transactions.[106] Rather than conduct a separate Howey analysis for Terraform’s institutional sales and public trading platform sales, the court grouped all of the transactions into one Howey analysis—reasoning that the manner in which all LUNA coin sales were made was similar.[107] However, Terraform’s institutional sales were factually distinct from the public trading platform sales. For example, Terraform’s CEO signed the purchase agreements with respect to the institutional sales.[108] This is a distinct fact that was not present for Terraform’s public trading platform sales. Even if both Terraform’s institutional sales and public trading platform sales, analyzed under the Howey framework separately, ultimately amounted to offerings of investment contracts, the court’s approach in Terraform Labs—grouping together asset transactions with separate and distinct facts present at the time of the transaction—risks inviting a gross misapplication of the Howey test because Howey is meant to be applied on a transaction-by-transaction basis.[109]

Terraform Labs and Ripple Labs correctly attempted to analyze the economic reality of the crypto-asset transactions by focusing on what kinds of statements or promotional material promulgated by the issuer could lead buyers to derive an expectation of profits based on the efforts of others.[110] The Terraform Labs court, despite its refusal to separate the transactions at issue, highlighted the fact that Terraform publicly touted the profits to be had by buying its LUNA coin and that the profits were dependent on the efforts of Terraform.[111] In Ripple Labs, the court looked at Ripple’s distribution of its promotional material for XRP, which touted XRP as an investment.[112] Moreover, the court looked at public comments made by Ripple’s senior executives, which also suggested that XRP’s success as a crypto asset was linked to Ripple’s efforts to develop XRP’s utility.[113]

The Ripple Labs court is unique for highlighting the fact that Ripple’s Programmatic Sales were anonymous transactions.[114] The court found this fact particularly interesting because it tended to illustrate that programmatic buyers could not have derived an expectation of profits from the efforts of Ripple because the programmatic buyers did not receive any representations to that extent from the seller, who was Ripple.[115] The court’s reasoning arguably alters the Howey test because the court seems to suggest that buyers must derive an expectation of profits not merely based on the efforts of others but, more specifically, based on the efforts of the crypto asset seller. Because the Ripple Labs court arguably alters the Howey test, the Terraform Labs court did not discuss the nature of Terraform’s public trading platform sales (which were likely also anonymous transactions) because Howey only requires that buyers have an expectation of profits based on the efforts of others and not the efforts of the seller.[116]

Ripple Labs and Terraform Labs illustrate the novel application of the Howey framework to crypto-asset transactions. The courts differ on how to group crypto-asset transactions in preparation for applying the Howey analysis to those groups of transactions.[117] The courts also differ on the significance placed on anonymous transactions and how this affects Howey’s fourth prong. However, the courts generally appear to be in sync in focusing on how the crypto asset was promoted.[118] How a crypto asset is promoted—whether for investment or consumption—may have a critical effect on whether Howey’s third prong is met. If a crypto asset is promoted as an investment, like it was in Terraform’s LUNA sales and Ripple’s XRP Institutional Sales, then a strong argument exists that buyers had an expectation of profit.

IV. Expanding the Forman Holding to Include the Possibility of Profits

There are two critical considerations when conducting an analysis of a buyer’s expectation of profits: (1) the manner in which the asset is marketed to prospective buyers and (2) the asset’s capability of appreciating in value. If a crypto-asset issuer markets the asset’s utility or consumptive purpose, but the asset is also capable of providing a profit, then this Comment suggests that the issuer did not offer an investment contract because Forman distinguishes between assets offered as investments and assets offered for consumption.[119]

Recall that in Forman, “stock” purchasers could not make a profit by virtue of merely being a stockholder.[120] The stock had no capital appreciation and there were heavy restrictions on what the purchasers could do with the stock, to whom the stock may subsequently be sold to, and at what price it may be sold.[121] Ownership of the stock provided a consumptive benefit.[122] Specifically, stockholders received the right to occupy and possess a room for housing needs.[123] United Housing Foundation did not market the stock as an investment and only highlighted the consumptive benefit of being a stockholder.[124] Therefore, the Forman holding is limited to facts where (1) an asset purchaser could not make a profit by owning the asset and (2) the primary motive behind purchasing the asset is the asset’s consumptive benefit.[125] Under Forman, if these facts are present, then an investment contract is not offered because buyers did not derive an expectation of profits.[126]

Many publicly traded crypto assets are capable of appreciating in value and are freely tradeable.[127] Because these assets may provide a profit, Forman cannot currently be properly applied to such crypto-asset transactions. However, the Court in Forman reasoned that federal securities laws should not apply when there is not an investment opportunity being offered.[128] The Court was clear that assets purchased for personal consumption cannot be properly characterized as securities transactions.[129] Therefore, if an issuer restricts its marketing material to emphasize the fundamental purpose of its crypto asset and how the asset is to be practically used, thereby not offering an investment opportunity, then the Court’s reasoning in Forman likely supports a finding that buyers did not derive an expectation of profits even if the crypto asset is capable of appreciating in value. A crypto asset’s mere capability of appreciating in value should not automatically dictate that buyers possess an expectation of profits. To be sure, some buyers may speculate on an asset’s future value and purchase the asset as an investment. But if an issuer restricts its marketing campaign to only highlighting the crypto asset’s utility and function, then such an issuer is offering a digital commodity to be consumed by purchasers regardless of the specific motivations behind each purchaser. Such a fact pattern, while admittedly distinct from the facts present in Forman, should nevertheless be subject to the same reasoning the Court used in Forman.

V. Conclusion

The emergence of new technologies tends to disrupt current legal frameworks and invite new legal challenges. While U.S. lawmakers attempt to figure out how the new technology works and the best way to regulate its use, the industry is often moving at a much faster pace—leaving lawmakers behind and forcing them to catch up. With respect to the crypto industry, Congress is behind the ball, which has frustrated many industry participants who believe federal regulatory agencies need definitive guidance from Congress on how to regulate crypto assets.

Under former SEC Chairman Gary Gensler, the SEC’s regulation-by-enforcement approach to regulating the crypto industry left the industry in a state of regulatory uncertainty. Courts were tasked with applying the Howey framework to crypto-asset transactions to determine if crypto-asset issuers were offering investment contracts, and no clear framework has been provided by the courts. And while the SEC, under Chairman Paul Atkins, has since abandoned regulation-by-enforcement and dropped many of its ongoing cases against crypto industry participants, the legal uncertainty of whether certain crypto-asset issuers are offering investment contracts remains.

Zachary J. Mouton

  1. Generally, “[a] digital asset is created and stored digitally, offering identifiable value.” What Are Digital Assets? Definition, Types, and Their Importance, Investopedia (Aug. 23, 2025), https://www.investopedia.com/terms/d/digital-asset-framework.asp [https://perma.cc/DW9Q-BQ3> V]. The term “digital asset” is a broad term that encompasses both digital photos, documents, videos, and newer digital assets such as crypto assets, nonfungible tokens, and security tokens. Id. This Comment focuses mostly on crypto assets—a type of digital asset that is a “store of value or medium of exchange . . . that’s stored on the blockchain.” Demystifying Cryptocurrency and Digital Assets, PwC, https://www.pwc.com/us/en/tech-effect/emerging-tech/understanding-cryptocurrency-digital-assets.html [https://perma.cc/F4G6-9XQG] (last visited Sep. 1, 2025).

  2. See The History of Bitcoin: A Complete Timeline of the Start of Web3, Hist. Coop. (Jan. 3, 2024), https://historycooperative.org/the-history-of-bitcoin/ [https://perma.cc/YE3S-UVKD]. As of February 24, 2025, Congress has not presented a bill to the President addressing crypto regulation. See generally Jesse Hamilton & Nikhilesh De, U.S. House Approves Crypto FIT21 Bill with Wave of Democratic Support, CoinDesk (May 23, 2024, at 14:45 CT), https://www.coindesk.com/policy/2024/05/22/us-house-approves-crypto-fit21-bill-with-wave-of-democratic-support [https://perma.cc/D24E-PGWK] (stating that in 2024 the Financial Innovation and Technology for the 21st Century Act was the first crypto bill to clear one of the chambers of Congress).

  3. See CoinMarketCap, https://coinmarketcap.com/ [https://perma.cc/T5UC-G6JW] (last visited Aug. 22, 2025).

  4. See Nathan Reiff, FTX Crypto, Exchange Collapse: Causes, Consequences, and Lessons, Investopedia (Nov. 5, 2025), https://www.investopedia.com/what-went-wrong-with-ftx-6828447 [https://perma.cc/6KWX-5H75].

  5. See Framework for “Investment Contract” Analysis of Digital Assets, U.S. Sec. & Exch. Comm’n (July 5, 2024), https://www.sec.gov/about/divisions-offices/division-corporation-finance/framework-investment-contract-analysis-digital-assets [https://perma.cc/8W4M-DXHW].

  6. Id. Under former SEC Chairman Gary Gensler, appointed by President Joe Biden in 2021, the SEC maintained an aggressive regulatory posture toward the crypto industry. Landon Manning, Gensler Defends His Crypto Policy in “Farewell Speech,” Prepares for Trump’s Replacement, Be (in) Crypto (Nov. 14, 2024, at 15:19 UTC), https://beincrypto.com/gensler-farewell-speech-sec-crypto-policy/ [https://perma.cc/Q3SD-N4JZ]. Rather than promulgate rules or wait for congressional guidance, the SEC, under Gary Gensler, attempted to establish a crypto asset regulatory framework using case law produced from SEC enforcement actions against crypto industry participants—an approach referred to as regulation-by-enforcement. Akshay S. Ralhi, Beyond Enforcement: The SEC’s Shifting Playbook on Crypto Regulation, Geo. L. Ctr. on Transnat’l Bus. & L.: Blog (May 9, 2025), https://www.law.georgetown.edu/ctbl/blog/beyond-enforcement-the-secs-shifting-playbook-on-crypto-regulation/ [https://perma.cc/AKA6-MN7J]. Under SEC Chairman Paul Atkins, appointed by President Donald Trump in 2025, the SEC has altered its attitude toward the crypto industry by establishing a more friendly regulatory posture. Id.; see also Crypto Task Force, U.S. Sec. & Exch. Comm’n, https://www.sec.gov/about/crypto-task-force [https://perma.cc/C25L-S78G] (last visited Aug. 26, 2025) (describing how the SEC’s Crypto Task Force applies a new approach to crypto asset regulation); U.S. Sec. & Exch. Comm’n, Crypto Task Force Designation (2025), https://www.sec.gov/files/crypto-task-force-designation-letter.pdf [https://perma.cc/X2WZ-XXNS] (announcing the launch of a task force to develop a regulatory framework for crypto assets). The differing regulatory postures set forth by the SEC illustrate the impact of a presidential administration. This Comment was written in the year 2024 when the SEC was led by Chairman Gary Gensler. As such, references to SEC opinions, beliefs, or arguments in this Comment reflect the SEC’s position under former Chairman Gary Gensler. It is likely that the SEC, led by Chairman Paul Atkins, will abandon many of its former opinions, beliefs, and arguments with respect to the crypto industry given President Trump’s pro-crypto sentiment and the SEC’s establishment of the Crypto Task Force. See Ralhi, supra.

  7. See Framework for “Investment Contract” Analysis of Digital Assets, supra note 5.

  8. Securities Exchange Act of 1934, 15 U.S.C. §§ 15(d)(1), 78(o) (requiring issuers who file a registration statement with the SEC to become subject to the 1934 Act’s continuous reporting requirements); Securities Act of 1933, 15 U.S.C. §§ 4(a)(1), 77(d) (stating that issuers, underwriters, and dealers are not exempt from the provisions of § 5 of the 1933 Act); Bitcoin: A Peer-to-Peer Electronic Cash System, Satoshi’s Archive: Bitcoin Whitepaper, https://www.bitcoin.com/satoshi-archive/whitepaper/ [https://perma.cc/HAF4-UTHA] (last visited Aug. 28, 2025) (stating that Bitcoin seeks to allow “any two willing parties to transact directly with each other without the need for a trusted third party”).

  9. Framework for “Investment Contract” Analysis of Digital Assets, supra note 5.

  10. What Are Cryptoassets (Cryptocurrencies)?, Bank of Eng. (Jan. 13, 2025), https://www.bankofengland.co.uk/explainers/what-are-cryptocurrencies [https://perma.cc/5YVG-J9D4]; Crypto: The Basics, Fin. Conduct Auth. (Oct. 5, 2024), https://www.fca.org.uk/investsmart/crypto-basics [https://perma.cc/TSG9-6PMN]. For example, the company Ripple Labs was founded by three engineers who created the XRP Ledger and the crypto asset XRP. XRPL’s Origin: Provide a Better Alternative to Bitcoin, XRP Ledger, https://xrpl.org/about/history [https://perma.cc/3WBF-PFJ7] (last visited Aug. 27, 2025).

  11. See Bitcoin: A Peer-to-Peer Electronic Cash System, supra note 8 (explaining that Bitcoin is an alternative currency that seeks to decentralize payment systems without the need for third parties).

  12. See Framework for “Investment Contract” Analysis of Digital Assets, supra note 5.

  13. Sec. & Exch. Comm’n v. W.J. Howey Co., 328 U.S. 293, 298−99 (1946).

  14. Securities Act of 1933, 15 U.S.C. § 77(b)(a)(1) (“The term ‘security’ means any . . . investment contract.”).

  15. See Framework for “Investment Contract” Analysis of Digital Assets, supra note 5.

  16. For example, the crypto asset XRP “facilitates transactions on the network, protects the [XRP] ledger from spam, and bridges currencies in the XRP Ledger’s native decentralized exchange.” See XRP: The Digital Asset for Real-World Utility, Ripple, https://ripple.com/xrp/ [https://perma.cc/V7WC-4ENC] (last visited Oct. 17, 2025). Moreover, “XRP can be sent directly without needing a central intermediary, making it a convenient instrument in bridging two different currencies quickly and efficiently.” See XRP Overview: Your Questions About XRP, Answered, XRP Ledger, https://xrpl.org/about/xrp [https://perma.cc/2REY-TYK3] (last visited Sep. 8, 2025). Bitcoin is a peer-to-peer electronic cash system that allows “two willing parties to transact directly with each other without the need for a trusted third party.” Bitcoin: A Peer-to-Peer Electronic Cash System, supra note 8. The crypto asset Ether “is the main internal crypto-fuel of Ethereum, and is used to pay transaction fees.” Vitalik Buterin, Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform 13 (2014), https://ethereum.org/content/whitepaper/whitepaper-pdf/Ethereum_Whitepaper_-_Buterin_2014.pdf [https://perma.cc/8ZGX-RGZE].

  17. See Nathan Peterson, What Is Cryptocurrency and How Does It Work?, charles SCHWAB (May 6, 2025), https://www.schwab.com/learn/story/cryptocurrencies-what-are-they [https://perma.cc/2K2L-7RBB].

  18. See, e.g., Coinflip, Inc., CFTC No. 15-29 (Sep. 17, 2015). In 2015, the Commodity Futures Trading Commission (CFTC) found that Bitcoin is a commodity and therefore subject to the CFTC’s jurisdiction. See id. (“Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.”).

  19. Compare 7 U.S.C. § 6(b) (explaining the CFTC’s regulation of futures trading), with Eva Su, Cong. Rsch. Serv., IF11256, SEC Securities Disclosure: Background and Policy Issues (2024) (explaining the SEC’s disclosure regime).

  20. See Sec. & Exch. Comm’n v. W.J. Howey Co., 328 U.S. 293, 298−300.

  21. See discussion infra note 33.

  22. See Primary vs. Secondary Markets: Does It Matter in Crypto Trading?, BYBIT (Apr. 4, 2023) [hereinafter Primary vs. Secondary Markets], https://learn.bybit.com/en/trading/primary-vs-secondary-markets [https://perma.cc/BB8Z-FF4N] (“A primary market is a type of crypto market that sells new coins no one else has owned before.”).

  23. See discussion infra note 33.

  24. See Primary vs. Secondary Markets, supra note 22.

  25. See Barclay Palmer, Institutional Investors vs. Retail Investors: What’s the Difference?, Investopedia (Oct. 30, 2024), https://www.investopedia.com/ask/answers/06/institutionalinvestor.asp [https://perma.cc/TPV6-6F34]. An institutional investor is usually a company or organization who invests money on behalf of other people. Id. A retail investor, on the other hand, is an individual who is investing his own money. Id.

  26. See Primary vs. Secondary Markets, supra note 22.

  27. See id.

  28. See id.

  29. See id.

  30. Compare Primary vs. Secondary Markets, supra note 22 (stating that “[f]or investors, [initial coin offerings] are a great way to buy into promising projects as early as possible”), with Adam Levy, 8 Benefits of Cryptocurrency & Why You Should Use It, The Motley Fool (Sep. 4, 2025, at 12:50 CT), https://www.fool.com/investing/stock-market/market-sectors/financials/cryptocurrency-stocks/benefits-of-cryptocurrency/ [https://perma.cc/NM5J-RGBR] (explaining the consumptive benefits of using cryptocurrency in everyday transactions).

  31. See Lewis Rinaudo Cohen et al., The Ineluctable Modality of Securities Law: Why Fungible Crypto Assets Are Not Securities 3 (Nov. 10, 2022) (unpublished manuscript), https://cclg.rutgers.edu/wp-content/uploads/Lewis-Cohen-Paper-March-3-2023-Presentation.pdf [https://perma.cc/ZD79-TXHD].

  32. 15 U.S.C. § 77b(a).

  33. The Securities Act of 1933 defines the term “issuer” to mean “every person who issues or proposes to issue any security.” Id. § 77b(a)(4). For purposes of this Comment, the term “issuer” or “crypto-asset issuer” shall refer to a crypto asset creator who is selling its crypto asset, regardless of whether a security is sold.

  34. See 15 U.S.C. § 77e(c); id. § 78o; 17 C.F.R. § 240.15d-1; 15 U.S.C. § 77l(a). Section 5 of the Securities Act of 1933 requires an issuer of securities to file a registration statement with the SEC if the issuer offers to sell or sells a security, unless an exemption applies. Securities Act of 1933, 15 U.S.C. §§ 5(c), 77e(c). Filing a registration statement with the SEC subjects the issuer to ongoing reporting requirements under the Securities Act of 1934 unless an exemption applies. Securities Exchange Act of 1934, 15 U.S.C. §§ 15(d)(1), 78o; 17 C.F.R. § 240.15d-1. An issuer of securities is exposed to liability under a number of provisions in the Securities Act of 1933 including, but not limited to, § 12, which permits the purchaser of a security to rescind his purchase if the issuer violated § 5 of the Securities Act. Securities Act of 1933, 15 U.S.C. §§ 12(a)(1), 77l(a). An issuer of securities is also subject to the anti-fraud provisions of the Securities Exchange Act of 1934 such as § 10(b) and rule 10b-5 promulgated thereunder. Securities Exchange Act of 1934, 15 U.S.C. §§ 10(b), 78j(b); 17 C.F.R. § 240.10b-5.

  35. Sec. & Exch. Comm’n v. W.J. Howey Co., 328 U.S. 293, 298−99 (1946). The Supreme Court has further defined prong four as an expectation of profits to be derived from “the entrepreneurial or managerial efforts of others.” See United Hous. Found., Inc. v. Forman, 421 U.S. 837, 852 (1975).

  36. Howey, 328 U.S. at 295.

  37. Id.

  38. Id. at 294. The service contracts were performed by Howey-in-the-Hills Service, Inc.—another Florida corporation that had direct common control and management with W.J. Howey Co. Id. at 294−95.

  39. Id. at 295 (“85% of the acreage sold during the 3-year period . . . was covered by service contracts . . . .”).

  40. Id. at 296.

  41. Id. at 299−300.

  42. Sec. & Exch. Comm’n v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 323 (S.D.N.Y. 2023) (“Howey and its progeny have held that a variety of tangible and intangible assets can serve as the subject of an investment contract.”); see Howey, 328 U.S. at 300. While the orange groves in Howey are not standalone securities, the manner in which the orange groves were offered amounted to an investment contract. See id.

  43. Ripple Labs, 682 F. Supp. 3d at 323 (stating that orange groves are “a standalone commodity which [is] not itself inherently an investment contract”).

  44. Will Kenton, Financial Instruments Explained: Types and Asset Classes, Investopedia (May 20, 2025), https://www.investopedia.com/terms/f/financialinstrument.asp [https://perma.cc/H2VQ-SAU5]; 15 U.S.C. § 77b(a)(1).

  45. Securities Act of 1933, 15 U.S.C. §§ 2(a)(1), 77b(a)(1) (defining a security to include “stock”).

  46. Ripple Labs, 682 F. Supp. 3d at 323 (“[I]f the original citrus groves in Howey were later resold, those resales may or may not constitute investment contracts, depending on the totality of circumstances surrounding the later transaction.”); see Howey, 328 U.S. at 298−99 (“[A]n investment contract . . . means a contract, transaction or scheme . . . .”).

  47. See Howey, 328 U.S. at 299−300 (“[Howey is] offering something more than fee simple interests in land, something different from a farm or orchard coupled with management services. They are offering an opportunity to contribute money and to share in the profits of a large citrus fruit enterprise managed and partly owned by [Howey].”).

  48. A subsequent sale of the orange groves will only be characterized as an investment contract if the purchaser made an investment of money in a common enterprise and was led to expect profits solely from the efforts of the promoter or a third party because Howey looks at contracts, transactions, or schemes and not the underlying asset. See id. at 298−300.

  49. See discussion supra note 48.

  50. Howey, 238 U.S. at 298−300; see Cohen et al., supra note 31, at 42 (“[T]he transaction-by-transaction nature of the Howey analysis of a scheme . . . flows directly from a court’s need to evaluate all the applicable facts and circumstances at the time the transaction took place . . . .”).

  51. United Hous. Found., Inc. v. Forman, 421 U.S. 837, 852−53 (1975) (“[A securities transaction occurs when an] investor is ‘attracted solely by the prospects of a return’ on his investment. By contrast, when a purchaser is motivated by a desire to use or consume the item purchased—‘to occupy the land or to develop it themselves,’ as the Howey Court put it—the securities laws do not apply.” (citations omitted) (quoting Howey, 238 U.S. at 300)).

  52. Id. at 858.

  53. Id. at 841−42.

  54. Id. at 851.

  55. Id.

  56. Id. at 853.

  57. Id. at 854.

  58. Id.

  59. See id. at 852–53.

  60. See id. at 859–60.

  61. Id. at 852−53 (citations omitted) (quoting Sec. & Exch. Comm’n v. W.J. Howey Co., 328 U.S. 293, 300 (1946)).

  62. See discussion supra note 16.

  63. Forman, 421 U.S. at 854 (“The Court of Appeals recognized that there must be an expectation of profits for these shares to be securities, and conceded that there is ‘no possible profit on a resale of [this] stock.’” (quoting Forman v. Cmty. Servs., Inc., 500 F.2d 1246, 1254 (2d Cir. 1974) (alteration in original)).

  64. Why Do Cryptocurrencies Have Value?, Fidelity (July 31, 2025), https://www.fidelity.com/learning-center/trading-investing/how-does-bitcoin-have-value [https://perma.cc/3HRR-ELAD].

  65. See id.

  66. Forman, 421 U.S. at 858 (“There is no doubt that purchasers in this housing cooperative sought to obtain a decent home at an attractive price. But that type of economic interest characterizes every form of commercial dealing. What distinguishes a security transaction—and what is absent here—is an investment where one parts with his money in the hope of receiving profits from the efforts of others, and not where he purchases a commodity for personal consumption or living quarters for personal use.”); see also Howey, 328 U.S. at 299−301 (stating that purchasers of tracts of land containing orange groves did not buy an investment contract if such purchasers declined to enter the profit-seeking endeavor that the service contracts offered).

  67. Many cases the SEC brought under former Chairs Jay Clayton and Gary Gensler against crypto industry participants, such as Coinbase and Ripple Labs, were in the appeal process before such cases were dropped by the SEC under Chairman Paul Atkins. See Shalini Nagarajan, XRP Surges over 13% After Ripple and SEC Drop Final Appeals in Landmark Case, TradingView: cryptonews (Aug. 8, 2025, at 00:00 GMT), https://www.tradingview.com/news/cryptonews:03d5d0cb2094b:0-xrp-surges-over-13-after-ripple-and-sec-drop-final-appeals-in-landmark-case/ [https://perma.cc/J5N9-6CGL]; Press Release, U.S. Sec. & Exch. Comm’n, SEC Announces Dismissal of Civil Enforcement Action Against Coinbase (Feb. 27, 2025), https://www.sec.gov/newsroom/press-releases/2025-47 [https://perma.cc/Y68H-C3TC]; Logan Hitchcock, From Coinbase to Ripple: The Biggest Crypto Cases Dumped by Trump’s SEC, Yahoo! Fin.: decrypt (Aug. 13, 2025), https://finance.yahoo.com/news/coinbase-ripple-biggest-crypto-cases-202640480.html [https://perma.cc/U8GZ-SRRP]; Press Release, U.S. Sec. & Exch. Comm’n, SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency (June 6, 2023), https://www.sec.gov/newsroom/press-releases/2023-102 [https://perma.cc/4KU6-3TRD].

  68. Sec. & Exch. Comm’n v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 316 (S.D.N.Y. 2023); Sec. & Exch. Comm’n v. Terraform Labs Pte. Ltd. 684 F. Supp. 3d 170, 181 (S.D.N.Y. 2023).

  69. See discussion infra Section III.A.3.

  70. “XRP is the native token of the XRP Ledger . . . . [It] facilitates transactions on the network, protects the ledger from spam, and bridges currencies in the XRP Ledger’s native decentralized exchange (DEX).” XRP: The Digital Asset for Real-World Utility, supra note 16.

  71. Ripple Labs, 682 F. Supp. 3d at 320, 324, 335 (granting in part and denying in part the parties’ cross-motions for summary judgment).

  72. XRP: The Digital Asset for Real-World Utility, supra note 16.

  73. Id.

  74. Ripple Labs, 682 F. Supp. 3d at 321.

  75. Id. at 316, 328, 330.

  76. Id. at 324, 328.

  77. See id. at 326–30. The court found that Ripple’s Institutional Sales met all of the elements of the Howey test. Id. at 324−28. However, the court only analyzed Howey’s third and fourth prongs for Ripple’s Programmatic Sales. Id. at 328−30. Because these prongs were not met, the court did not conduct an analysis of Howey’s first and second prongs with respect to Ripple’s Programmatic Sales. See id. For purposes of this Comment, the Howey test is split into four prongs: (1) an investment of money (2) in a common enterprise (3) with an expectation of profits (4) solely from the efforts of the promoter or a third party. Some courts, such as the Ripple Labs court, combine prongs three and four into one prong resulting in a total of three prongs. Id. at 321. It is immaterial how the Howey test is divided up so long as every component of each prong is met. See Framework for “Investment Contract” Analysis of Digital Assets, supra note 5 (illustrating that the SEC divides the Howey test into three prongs but prong three must have both an expectation of profits and reliance of others).

  78. Ripple Labs, 682 F. Supp. 3d at 326.

  79. Id. at 326−27.

  80. Id. at 327.

  81. Id. at 328.

  82. Id. at 330.

  83. Id. at 328.

  84. Id. at 329.

  85. Id. at 329−30.

  86. Id.

  87. See id.

  88. See Primary vs. Secondary Markets, supra note 22.

  89. See id.

  90. See, e.g., Sec. & Exch. Comm’n v. Terraform Labs Pte. Ltd., 684 F. Supp. 3d 170, 197 (S.D.N.Y. 2023). In Terraform Labs, the court declined to draw a distinction between these coins based on their manner of sale, such that coins sold directly to institutional investors are considered securities and those sold through secondary market transactions to retail investors are not. In doing so, the Court rejects the approach recently adopted by another judge of this District in a similar case, SEC v. Ripple Labs Inc. Id. at 197.

  91. Ripple Labs, 682 F. Supp. 3d at 329 n.16.

  92. Terraform Labs, 684 F. Supp. 3d at 181.

  93. See id. at 182. Terraform also sold a variety of its other crypto assets, and the court analyzed these as well. Id. But for the purpose of this Comment, we will restrict our discussion of Terraform Labs to only Terraform’s LUNA coin sales.

  94. See id. at 184, 192, 198.

  95. Id. at 183–84.

  96. Id. at 183.

  97. Id. at 197.

  98. Id.

  99. See id. at 195–97.

  100. Id. at 197.

  101. Id. at 196−97.

  102. Id. at 196−98.

  103. Id. at 197; Sec. & Exch. Comm’n v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 324, 328 (S.D.N.Y. 2023).

  104. Ripple Labs, 682 F. Supp. 3d at 328−30.

  105. Id. at 324–26, 328.

  106. Terraform Labs, 684 F. Supp. 3d at 197.

  107. Id. at 183, 195−98.

  108. Id. at 183–84.

  109. See Sec. & Exch. Comm’n v. W.J. Howey Co., 328 U.S. 293, 298−99 (1946) (stating that an investment contract “means a contract, transaction or scheme”); Cohen et al., supra note 31, at 61 (“[S]ince the Howey test by its terms applies to ‘contracts, transactions or schemes’, rather than assets, each time a court seeks to determine retrospectively whether an investment contract was present, they must analyze the facts and circumstances of a specific transaction.”).

  110. See Terraform Labs, 684 F. Supp. 3d at 196–97; Ripple Labs, 682 F. Supp. 3d at 326–28.

  111. Terraform Labs, 684 F. Supp. 3d at 196−97.

  112. Ripple Labs, 682 F. Supp. 3d at 326−27.

  113. Id. at 327–28.

  114. Id. at 328−29.

  115. Id.

  116. See Terraform Labs, 684 F. Supp. 3d at 196−97; Sec. & Exch. Comm’n v. W.J. Howey Co., 328 U.S. 293, 298−99 (1946) (“[A]n investment contract . . . means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party . . . .”).

  117. Terraform Labs, 684 F. Supp. 3d at 197; Ripple Labs, 682 F. Supp. 3d at 324, 328.

  118. Terraform Labs, 684 F. Supp. 3d at 196−98 (“[Terraform] embarked on a public campaign to encourage both retail and institutional investors to buy [its] crypto-assets by touting the profitability of the crypto-assets and the managerial and technical skills that would allow [Terraform] to maximize returns on the investors’ coins.”); Ripple Labs, 682 F. Supp. 3d at 326−27, 329−30.

  119. United Hous. Found., Inc. v. Forman, 421 U.S 837, 852−53 (1975) (“[W]hen a purchaser is motivated by a desire to use or consume the item purchased—‘to occupy the land or to develop it themselves,’ as the Howey Court put it—the securities laws do not apply.” (citation omitted)).

  120. Id. at 854.

  121. Id. (“[P]urchasers . . . will be unable to resell their apartments at a profit since the apartment must first be offered back to Riverbay ‘at the price . . . paid for it.’” (second omission in original)).

  122. See id. at 858 (“What distinguishes a security transaction—and what is absent here—is an investment where one parts with his money in the hope of receiving profits from the efforts of others, and not where he purchases a commodity for personal consumption or living quarters for personal use.”).

  123. Id.

  124. Id. at 853−54.

  125. See id. at 852−54, 858.

  126. Id.

  127. See How Does Cryptocurrency Gain Value?, Crypto Indus., https://cryptoindustry.com/insights/learn/how-does-cryptocurrency-gain-value/ [https://perma.cc/P53J-AY9H] (last visited Sep. 7, 2025).

  128. See Forman, 421 U.S. at 853−54, 858 (explaining that the promotional material for the stock offered to prospective buyers emphasized the fundamental purpose of the undertaking—housing—and not an investment opportunity because buyers did not have an expectation of receiving profits from the efforts of others).

  129. Id. at 858.