Howey Doin?

Part V - What Howey Is and What It Is Not

Hot from the presses:

Mr. Chairman, we fully agree with you on that. In fact, we said the exact same thing in our last post. That said, we don’t think Howey is the right tool to get there. 

Imagine a family living in Hawaii. They lived on one of the islands all their life, happily driving around in their car. They now want to go to California, and they insist on driving their car. Would they ever get there? 

Of course not. What is the problem here? The mistake they are making is insisting on using the tool they have rather than solving their problem, which is leaving the island. The fact that they never left the island before is irrelevant. That is the goal now and that is the thing that matters the most. 

So, Mr. Chairman, here is how we think about this: Since 1933, the SEC rarely needed to leave the island of true investments and the sheds on those islands where promoters met the buyers to make deals. But that is the goal now. When crypto supporters cry “This time is different,” or they say that Bitcoin is “the first new asset class in 150 years,” they are onto something, but it is not what they think it is. Rather, they are signaling to you that policy goals, rather than how we tried to achieve those goals in the past (meaning, Howey), should take precedence over everything else. The following observation must be the starting point:

This is really the first time in modern history when a non-cash-flow-generating asset has permeated into finance this much.

So, the only question is: “Does the SEC have the authority to regulate crypto?” The answer to that is, yes, it does. The goal is investor protection, as mandated by Congress in 1933. The tool to get there is not Howey, which came 13 years later.