A joint hearing on Capitol Hill sought to measure the regulatory gaps in crypto on Wednesday. The criteria for determining whether a token should be considered a security or a commodity highlighted how wide those gaps have been.

The topic has been a sticking point for years, and a puzzle piece for determining to what degree the Commodity Futures Trading Commission (CFTC) or the Securities and Exchange Commission (SEC) have authority over the digital assets industry.

During the hearing, Republican and Democratic lawmakers disagreed about whether new regulation was needed to address the classification of digital assets. Rep. Dusty Johnson (R-SD) said a lack of clarity within the existing law has been holding back innovation in the marketplace for too long.

“I know this town loves kicking the can down the path,” he said. “But there are times where it’s just clear, even to Congress, that action is appropriate and needed.”

Johnson honed in specifically on the Howey Test, the SEC’s four-pronged assessment for determining whether an asset, such as a cryptocurrency, should be considered a security. 

A core element of the Howey Test looks for a reasonable expectation that profits are derived from the efforts of others—that a group of individuals, such as a token’s developers, has a sizable impact on an asset’s overall price.

Johnson claimed that Congress could help regulators by clearing up how decentralization plays a role, providing the CFTC and SEC with “particular triggers” that delineate when an asset can shift from being a security to a commodity, something the SEC’s former Di

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Author: André Beganski

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