At the Intersection of Crypto and Howey: Classifying Secondary Market Sales
Comment
By Thomas Natal*
Introduction
For a moment, let us rewind the sands of time back to 2013. The Baltimore Ravens win Super Bowl XLVI,[1] “Thrift Shop” by Macklemore & Ryan Lewis is the top single on the music charts,[2] a dozen eggs cost an average of $1.91,[3] Barack Obama is the 44th President,[4] and the closing price of Bitcoin is $732.00.[5] Fast forward to the year 2025: Bitcoin peaked on October 7, 2025, at $124,752.14.[6] With Bitcoin’s meteoric rise in value from 2013 to its peak in October 2025, an increase of approximately 16,942%, vast amounts of wealth have become tied to activities related to Bitcoin.[7]
Despite Bitcoin’s modest beginnings, it quickly transformed into a significant store of wealth.[8] Bitcoin was created in 2008, released to the public in 2009, and began trading in 2010 with the launch of Bitcoinmarket.com.[9] May 22nd, 2010, marks a day that will forever live in infamy for Bitcoin.[10] On this day, Laszlo Hanyecz, through the Bitcoin forum, successfully purchased two Papa John’s Pizzas for approximately 10,000 Bitcoin.[11] At Bitcoin’s peak, those 10,000 Bitcoin would roughly be worth 1 billion dollars.[12] Such dramatic appreciation illustrates Bitcoin’s transformation from a negligible medium of exchange into a substantial store of wealth.[13]
The creation of Litecoin in 2011, two years after the creation of Bitcoin, started an explosion in the cryptocurrency ecosystem[14] that has continued until present day.[15] This growth is reflected in the widespread buying, selling, and trading of cryptocurrency (crypto).[16] Crypto trading skyrocketed from a single asset on one platform to thousands of cryptocurrencies on hundreds of global exchanges.[17] Today, many consider buying and selling crypto through exchanges on smartphones or laptops a normal daily activity.[18]
As the crypto ecosystem expanded, regulators began noticing the need for regulatory oversight.[19] According to the former Co-Director of the SEC Enforcement Division, these regulations were needed “to protect investors and the integrity of the market.”[20] In 2014, the Internal Revenue Service (IRS) began classifying crypto as property.[21] This classification means that every crypto transaction is potentially taxable and capital gains tax rates apply.[22] In 2016, the Commodity Futures Trading Commission (CFTC) followed suit, stating that “Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities, and are therefore subject as a commodity to applicable provisions of the Act and Regulations.”[23] Finally, in July of 2017, the Securities and Exchange Commission (SEC) stated its position, concluding that “offers and sales of digital assets by ‘virtual’ organizations are subject to the requirements of the federal securities laws.”[24] Further, if the sale of crypto is classified as a security, it must be registered with the SEC.[25]
Recent fraud cases highlight the dangers of an unregulated crypto ecosystem.[26] In November of 2022, FTX ranked among the largest crypto exchanges in the world and stood as one of the most influential players in the crypto space.[27] During this time, allegations surfaced against then-CEO Sam Bankman-Fried, claiming embezzlement and misuse of customer funds.[28] The scandal revolved around a story by CoinDesk detailing that the majority of the assets held by FTX were not fiat currency or other market-proven crypto, but instead were other tokens created and controlled by FTX.[29] Thus, if the price of the FTX created token, FTT, were to drop, then the company would be at risk of insolvency.[30]
As a result of CoinDesk’s; story, investors and customers rushed to withdraw their funds from FTX.[31] These withdrawals exposed an eight-billion-dollar hole in FTX’s accounts and served as the catalyst for the company’s bankruptcy.[32] FTX’s collapse affected millions of users.[33] The SEC charged Sam Bankman-Fried with “orchestrating a scheme to defraud equity investors in FTX Trading Ltd (FTX).”[34] The FTX collapse is an example of the dangers posed by an unregulated crypto industry. Although the collapse of FTX and other fraudulent cases in the crypto industry are concerning, a broader question remains: whether the sale of crypto should be subject to federal securities laws. Further, if the sale of crypto is subject to these requirements, does that mean all sales of crypto are subject, or only certain sales?
This Comment proposes that the sale of crypto in the secondary market is not an investment contract. Thus, secondary sales should not be subject to the requirements of federal securities laws. Section I begins with a brief overview of the history of crypto. Next, this Section defines a security, describes how they are regulated, and details the test used to identify whether a sale contains a security. Finally, Section I examines crypto sales jurisprudence. Section II first analyzes the secondary market and argues that courts should apply the Howey test to each crypto sale separately. Section II then applies crypto jurisprudence to the surrounding secondary market and concludes that these sales do not constitute investment contracts. Therefore, this Comment suggests that selling crypto on the secondary market is not the sale of a security.
I. Foundations of Crypto Asset Classification Under U.S. Securities Law
A general understanding of crypto, securities regulation, and relevant case law is essential to understanding the application of securities laws to crypto and secondary market sales. This Section begins with a brief overview of crypto’s history. Next, this Section reviews the statutory definition of a security, the regulation overseeing the sale of a security, and the test used to determine whether a security is involved in a sale. Finally, this Section examines the jurisprudence applying these principles to crypto sales.
A. The Evolution and Development of Crypto Markets
Although the concept of cryptocurrency may appear novel, DigiCash Inc. developed the first cryptocurrency in 1990 designed to protect the identity of individuals making payments online.[35] Given the vast number of crypto protocols in existence today,[36] the term cryptocurrency is difficult to precisely define.[37] Despite the ever-evolving nature of crypto, “cryptocurrency can [best] be described as an Internet-based medium of tokenized exchange that uses cryptographical functions and encryption algorithms to conduct transactions with few or no intermediaries on a network that is often designed to be decentralized.”[38] Today, crypto only exists digitally or virtually as “coins” and “tokens.”[39]
Bitcoin is the first decentralized[40] cryptocurrency[41] and remains the most widely recognized digital asset.[42] Satoshi Nakamoto[43] developed Bitcoin in 2008, [44] and described it as, “[a] purely peer-to-peer version of electronic cash allow[ing] online payments to be sent directly from one party to another without going through a financial institution.”[45] Its creation allowed people to send payments to anyone worldwide through a “decentralized global network” that is open twenty-four hours a day and seven days a week.[46]
Building on Bitcoin’s development, more than 20,000 cryptocurrencies exist today.[47] Cryptocurrencies come in many forms including: altcoins,[48] stablecoins,[49] and meme coins.[50] Although the terms “tokens” and “coins” are often used interchangeably, there is a significant difference between the two.[51] Coins are a form of digital currency operating on their own blockchain.[52] Because coins store value and act as an intermediary instrument, they function similar to traditional currency.[53] In comparison, tokens exist outside their own blockchain.[54] Although tokens can hold value, its primary functions are utility and allowing users special features.[55]
A common feature among cryptocurrencies is the use of blockchain technology.[56] Blockchain technology allows a community of users to record transactions between one another on a shared ledger.[57] A blockchain is a shared digital record or ledger that stores and tracks the movement of a digital asset across a network.[58] The terms shared record and ledger refer to a “collection of transactions” that are shared amongst members of a community.[59] Any type of interaction between parties, such as transfer of currency or information, is considered a transaction.[60]
Transactions on the same crypto ledger are grouped together in a block.[61] A singular block contains several transactions.[62] Then, the block is sent to multiple publishing nodes[63] that compete to publish the node on the blockchain.[64] A publishing node must validate and authenticate a block before publishing it.[65] “Validity and authenticity” of a node are ensured by verifying that each transaction is in the correct format and has been cryptographically signed.[66] Once a block has been validated and authenticated, it is published to the blockchain.[67] For example, multiple Bitcoin transactions, such as users transferring Bitcoin to different people, are grouped together into a single block, which is then added to the blockchain ledger.[68] The block is then transmitted to multiple nodes for validation and authentication, and once it satisfies the network’s requirements, it is published on the blockchain.[69]
Publishing nodes compete using cryptographic algorithms.[70] Proof-of-work and proof-of-stake are the two primary forms of cryptographic algorithms used to secure transactions on a blockchain ledger.[71] Proof of work (PoW), or mining, refers to the process of publishing blocks on the blockchain by solving computationally intensive mathematical puzzles.[72] These complex mathematical puzzles require significant computational power, which is generated by high-performance computers and consumes large quantities of energy.[73] Proof-of-stake (PoS), or staking, is a process where a person or organization locks up a certain amount of crypto by sending it to a specific address.[74] The amount of crypto locked up or “staked” then serves “as a determining factor for publishing new blocks” on the blockchain.[75] Higher odds are assigned to those nodes with larger staked positions.[76] In both PoW and PoS, the participant selected by protocol’s algorithm to publish the next block to the blockchain generally receives a reward in crypto.[77]
One of blockchain technology’s main advantages is its ability to process large quantities of digital transactions at a fraction of the cost of traditional financial intermediaries, by eliminating singular payment nodes like banks.[78] Instead, an unalterable public ledger replaces the central node on a decentralized network.[79] As Satoshi explained, decentralization in crypto refers to the distribution of control and decision-making across a network of nodes, rather than its concentration in a single centralized entity, such as a bank.[80] Decentralization occurs when no singular authority controls the blockchain.[81] If a blockchain is decentralized, that characteristic plays an important role in determining whether a crypto transaction qualifies as a sale of a security.[82]
While some argue that crypto is a ruse to circumvent legal guidelines, its worldwide adoption is advancing rapidly—at a pace comparable to the early growth of the internet.[83] However, uncertainty exists among companies and crypto users as to the legal classification of crypto.[84] Despite the IRS, CFTC, and SEC each weighing in on the legal status of crypto, its classification remains in flux.[85] In an effort to reduce uncertainty surrounding crypto classification, companies such as Coinbase, the largest crypto exchange in the United States, have petitioned the SEC for clarification.[86] The SEC responded by filing suit against Coinbase, naming thirteen cryptocurrencies as securities.[87] The SEC claims that the sale of these thirteen cryptocurrencies meets the definition of a security in the form of an investment contract.[88]
B. Securities and the Howey Investment Contract Framework
The juridical definition of a security is extremely broad, encompassing a wide range of terms.[89] A transaction is subject to securities regulation only if it involves a security.[90] To determine whether a particular sale involves a security, the United States Supreme Court developed a governing test.[91] Accordingly, for the sale of crypto to qualify as the sale of a security, it must satisfy the Court’s test and fall within the statutory definition of a security.[92] First, this Section defines a security and discusses the regulation of securities. Next, this Section will examine the test created to determine if a security is involved in a sale.
1. Statutory Definition of Securities
A security is a representation of a right in something else that lacks “intrinsic value.”[93] Because securities, goods, and commodities are all tradable assets that can appear functionally similar in economic transactions, the distinctions between them are not always readily apparent.[94] Securities differ from goods and commodities in three distinct ways: (1) they are “created rather than produced,” (2) they cannot be “used or consumed by their purchasers,” and (3) they possess an “intangible and complex nature.”[95] These characteristics allow securities to be created in potentially unlimited quantities and, due to their complexity, create opportunities for abuse by dishonest people.[96] Accordingly, securities regulation is primarily concerned with protecting investors and traders.[97]
Securities are subject to both federal and state regulation.[98] For the purpose of this Comment, this Section focuses on federal regulations. Federal securities law regulates the primary market, in which companies offer securities to the public, and the secondary market, where previously purchased securities are publicly traded.[99] In the primary market, companies sell securities to institutions and skilled investors, whereas the secondary market allows those securities to be traded between members of the public.[100] The Securities Act of 1933[101] regulates the primary market through the “distribution of securities” and provides protection for purchasers[102]; the Securities Act of 1934[103], commonly called the Exchange Act, regulates the secondary market by creating the SEC tasked with regulating “all aspects of public trading of securities.”[104]
To classify a sale as the sale of a security, the transaction must involve an item that falls within the statutory definition of a security.[105] Included in the vast definition of “security” in 15 U.S.C § 77(b)(a)(1) is the term “investment contract.”[106] Courts have held that the key legal issue, as it pertains to the sales of crypto, is whether the specific sale constitutes an “investment contract” within the juridical definition of a security.[107]
2. The Howey Framework
Courts needed a workable definition for the term investment contract to apply securities regulation appropriately.[108] In SEC v. W.J. Howey,[109] the Supreme Court considered whether an unconventional sale combining a warranty deed with a service agreement qualified as an investment contract within the meaning of the federal securities laws.[110] The defendant in Howey promoted and sold investment packages that combined a land sale and service contract.[111] The land sale contracts contained standard price-per-acre plots within a 500-acre citrus farm, each with a specified number of citrus trees.[112] The service contracts included full cultivation, harvesting, and marketing of the crop for ten years with no option to cancel.[113]
Although the sale of land by itself generally is not an investment contract, the Court found that the manner in which the contracts were sold and promoted in combination constituted an investment contract.[114] Further, the Court held that under the Securities Act, an investment contract is “a contract, transaction[,] or scheme whereby a person invest[s] money in a common enterprise and is led to expect profits solely from the efforts of [others].”[115] The test put forth by the Supreme Court has commonly become known as the Howey test.[116]
The Howey test consists of three prongs: (1) an investment of money, (2) a common enterprise, and (3) an expectation of profits solely from the efforts of others.[117] All three Howey prongs must be satisfied for a sale to qualify as an investment contract.[118] In applying the Howey test, courts mustalso consider the “economic reality” and “totality of the circumstances” surrounding the sale.[119] While crypto companies challenge the viability of the Howey test on new and innovative technologies, such as crypto, the Court designed the Howey test to be adaptable.[120] The Court emphasized that the Howey test is a “flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profit.”[121] More recently, SEC v. Ripple Labs emphasized that the “totality of the circumstances and economic reality of the specific contract” are essential to the application of the Howey test on crypto.[122]
C. Crypto Jurisprudence as Related to Crypto Sales
The SEC has asserted that certain crypto transactions, including initial coin offerings (ICO), programmatic sales, and secondary sales, can satisfy the Howey test and thus qualify as investment contracts.[123] An initial coin offering is the first sale of a new crypto coin to investors before the coins are offered to the public.[124] The ICO is used to raise money through crowdfunding.[125] In an effort to distance the ICOs likeness from an initial public offering (IPO) for traditional securities, crypto companies now call ICOs a token-generated event (TGE).[126] Programmatic crypto sales involve an issuer selling crypto through a trading platform’s automated order-matching system, where parties transact through blind bid and ask orders without knowing the identity of the other party.[127] In the context of crypto, such sales typically occur through exchanges that match buyers and sellers anonymously.[128] By contrast, a secondary market crypto sale occurs when a digital asset, i.e., crypto, is traded between parties other than the original issuer.[129] Typically, secondary market sales of crypto take place through an exchange, where the purchaser generally does not know the identity of the seller.[130]
Because no case law directly addresses secondary market crypto sales, it is necessary to examine how courts establish a common enterprise and the expectation of profits in other crypto sales. This Comment focuses on the second (common enterprise) and third (expected profits) elements of the Howey test and jurisprudence surrounding sales of crypto. This Section first examines how courts apply the common enterprise element to the sale of crypto. Next, this Section explores how the expectation of profits has been interpreted in the context of ICOs and programmatic crypto sales.
1. The Common Enterprise Requirement in Crypto Sales
Courts have held that a common enterprise exists where either horizontal commonality or vertical commonality is established.[131] There is a split amongst Federal Circuit courts on whether a common enterprise can be established through horizontal commonality, vertical commonality, or both.[132] The Second, Third, Sixth, and Seventh Circuits hold that a common enterprise can only be proven through establishing horizontal commonality.[133] However, the Fifth, Ninth, and Eleventh Circuits have recognized that vertical commonality may be sufficient to establish a common enterprise.[134] Horizontal commonality exists when the funds or profits of multiple investors are pooled together, tying each investor’s success to the overall success of the enterprise.[135] Originally, horizontal commonality required the sharing of profits or losses on a pro rata basis,[136] but several courts removed this requirement.[137]
In comparison, vertical commonality is divided into strict vertical commonality and broad vertical commonality.[138] Strict vertical commonality requires that “the fortune of investors be tied to the fortunes of the promoter,” while broad vertical commonality only requires a link between the fortunes of the investors and the “efforts of the promoter.”[139] The first Section examines the requirements for establishing a common enterprise through horizontal commonality, and its application to the sale of crypto. The second Section distinguishes between strict and broad vertical commonality and evaluates the application of each to the sale of crypto.
a. Horizontal Commonality in Crypto Sales
Combining or pooling of funds is required to establish a common enterprise through horizontal commonality.[140] “In fact, a finding of horizontal commonality requires a sharing or pooling of funds.”[141] Where horizontal commonality is present, “the fortunes of each investor depend upon the profitability of the enterprise as a whole.”[142] Essentially, the investors’ profits are always tied to the success of the overall enterprise.[143]
To deny the existence of a common enterprise through horizontal commonality, crypto companies often include a disclaimer stating that no contractual obligation exists between the buyer and seller of crypto.[144] However, courts have held that horizontal commonality does not require a finding of a contractual obligation between the buyer and seller.[145] In Ripple Labs, the defendants similarly claimed that the absence of a contractual obligation precluded the finding of a common enterprise.[146] The court rejected that argument, emphasizing that a contractual obligation is not required to establish the existence of a common enterprise.[147]
Courts have held that a common enterprise exists through horizontal commonality when the funds from crypto sales in ICOs or institutional sales are used to promote or create an ecosystem for the coin being sold.[148] The SEC established horizontal commonality in SEC v. Kik Interactive by demonstrating thatKik deposited all proceeds from the public sale of Kin, described as “a token distribution event,” into one singular bank account and used those pooled funds to create and support the Kin[149] ecosystem.[150] The court emphasized the economic reality and held that “Kik . . . pooled proceeds from its sale of Kin in an effort to create an infrastructure for Kin, and thus boost the value of the investment.”[151] Thus, the investors were all linked together by the success or failure of the Kin ecosystem, proving a common enterprise existed.[152]
Further, in SEC v. Ripple Labs, the SEC established that Ripple Labs stored funds from the sale of XRP,[153] the token used on the XRP ledger, in multiple accounts and later used these funds to promote and create the XRP ecosystem.[154] Even though the funds were stored in different accounts, the success of the investors was tied to the success of the overall company through the creation and promotion of the ecosystem.[155] As long as one entity controls the accounts, pooling of funds in one or more accounts can be used to prove a common enterprise through horizontal commonality.[156]
b. Vertical Commonality in Crypto Sales
The Fifth, Ninth, and Eleventh Circuits hold that a common enterprise is also established through vertical commonality.[157] Vertical commonality “focuses on the relationship between the promoter and the body of investors.”[158] There are two different kinds of vertical commonality: strict and broad.[159] Strict vertical commonality requires that “the fortunes of investors be tied to the fortunes of the promoter,” whereas broad vertical commonality requires only that a link exist between the fortunes of the investors and “the efforts of the promoter.”[160] Using broad vertical commonality to establish common enterprise has been challenged on the ground that a mere link between the parties effectively collapses the second and third prongs of the Howey’s test.[161]
Accordingly, the defendant in Ripple Labs argued that the court should reject all claims of a common enterprise through broad vertical commonality because if the Howey test was intended to only contain two elements, then the test would have been drafted as such.[162] Currently, the Fifth Circuit is the only court that allows a common enterprise to be established through broad vertical commonality.[163] Thus, the Fifth Circuit’s acceptance of broad vertical commonality remains an outlier highlighting the lack of consensus among courts in defining a common enterprise.[164]
Strict vertical commonality proves the existence of a common enterprise when the investors’ expected profits rely on the successful creation of an item.[165] Specifically, this commonality occurs in the case of crypto, where investors’ anticipated profits are largely tied to the successful creation of a blockchain.[166] The connection is even greater when the sold crypto is designed to be used within that blockchain.[167] Although the court found that horizontal commonality existed, it also recognized that the SEC made a “substantial showing of strict vertical commonality.”[168]
In SEC v. Telegram Groups, the defendant marketed and sold Grams[169] through Gram purchase agreements to initial buyers in two rounds of sales.[170] The Gram purchase agreements included “lockup provisions” prohibiting the resale of Grams for a designated period, as well as a contractual deadline for the successful creation of the Telegram Open Network (TON) blockchain.[171] The failed launch of the TON blockchain by the contractual deadline would result in Telegram owing repayment of any unspent funds.[172] Therefore, the court found that the purchase agreements proved that the investors and Telegram’s fortunes were intertwined by the contractual deadline for the TON blockchain.[173] Thus, strict vertical commonality showed that a common enterprise existed.[174] Ultimately, the court held that the Grams themselves were not securities, but that the manner in which the sales occurred made them investment contracts.[175]
Next, the Defendant in SEC v. Ripple Labs argued that a common enterprise cannot be established through broad vertical commonality, contending that the Second Circuit has rejected this theory as insufficient to satisfy the Howey test’s common enterprise requirement.[176] The court emphasized that strict vertical commonality turns on the relationship between investors’ expected profits and the efforts of the promoter rather than the existence of a formal contractual agreement.[177] However, the court declined to address whether a common enterprise may be established through broad or strict vertical commonality because the SEC demonstrated a common enterprise through horizontal commonality.[178] Recently, courts have questioned the validity of vertical commonality and have emphasized horizontal commonality as the more widely accepted approach.[179]
2. Expectation of Profits Element in Crypto Sales
The third prong of the Howey test is whether the “[investor] is led to expect profits solely from the efforts of the promoter or a third party.”[180] Over the years, the term solely has come under scrutiny, but courts clarified that it means profits must come “predominantly” from the efforts of others.[181] Expectations of profits exist when a person’s primary motivation to participate in a “contract, transaction, or scheme” is for an increase in value.[182] Courts have emphasized that the efforts of others focuses on the promoter’s efforts following the investment, rather than solely on the efforts made prior to the sale.[183]
For a crypto sale to qualify as an investment contract, the investor must have “a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”[184] Courts have largely focused on the marketing strategies or promises made by the sellers to establish the third prong.[185] Moreover, when analyzing the third prong of the Howey test, courts consider how the seller marketed and promoted the object and what the purchaser reasonably understood they were acquiring.[186]
By contrast, the expectation of profits is not satisfied “when a purchaser is motivated by the desire to use or consume the item purchased.”[187] The purchase of crypto primarily for use would not pass the Howey test.[188] For example, when a person purchases Ether[189] primarily to pay gas fees necessary to facilitate transactions on the Ethereum blockchain, rather than to hold it for potential price appreciation, the transaction reflects a consumptive use rather than an expectation of profit.[190] Where consumption is not the primary motivation, the characterization of the transaction as consumptive does not hold.[191] However, the Telegram court held that the expectation of profits is an objective test, focused on the promises and offers made by the promoter, rather than the subjective examination of each purchaser’s individual motivations.[192] First, this Section will examine the expectation of profits in ICOs. Next, this Section examines how the expectation of profits test has been applied to programmatic sales.
a. Expectation of Profits in Initial Coin Offerings
Courts have held that an expectation of profits existed when companies marketed ICO token sales as an attractive investment opportunity or as having potentially high returns.[193] In Balestra v. ATBCoin, the New York District court held that expected profits existed because ATB promised the value of the coins would rise with the launch of the ATB Blockchain.[194] Similarly, in SEC v. Kik, the SEC demonstrated expected profits through statements made by the Kik CEO promoting Kin’s high “profit-making potential.”[195] Investors in Kin were not only told the price would increase after the launch of the Kin blockchain, but also that the price to purchase Kin would increase from the first to the second round of initial investors.[196] These promotional tactics were used to prove an expectation of profits in SEC v. Kik.[197] Similarly, in Balestra v. ATBCoin and SEC v. Kik, the courts held that the economic reality of the sales demonstrated that purchasers reasonably expected their investment to increase based on the manner in which the cryptocurrencies were promoted.[198]
In Ripple Laps, the SEC highlighted Ripple’s marketing efforts during its early XRP sales, which resembled an ICO, to demonstrate an expectation of profits.[199] Ripple’s marketing campaign made it clear to initial buyers of XRP that the company used the funds to improve the market for XRP by developing uses for the XRP ledger, thereby increasing the value of XRP.[200] The court held these promotional campaigns showed a reasonable expectation of profits based solely on the work of others.[201]
b. Expectation of Profits in Programmatic Crypto Sales
Programmatic sales involve the automated buying and selling of assets through software driven platforms, where sales occur without direct communication between the buyer and seller.[202] For example, Ripple Labs’ sale of XRP through blind bid/ask transactions on a secondary trading platform, such as CoinBase,[203] would be a programmatic sale. In these sales, neither party is aware of the other party’s identity.[204] Because the identity of the buyer and seller is unknown, it is more difficult to prove that the buyer has an expectation of profits based on the seller’s efforts.[205] Nevertheless, a purchaser’s mere expectation of profits is insufficient to satisfy the Howey test;[206] rather, the expectation of profits must be derived predominantly from the efforts of the seller or promoter.[207]
In SEC v. Ripple Labs, the court made two distinctions between institutional/ICO sales and programmatic sales.[208] First, the buyer would not have an expectation of profits from the seller’s efforts, because the seller’s identity would be unknown to the buyer.[209] Second, buyers in ICOs are sophisticated entities, such as institutions and hedge funds, whereas programmatic buyers are significantly less sophisticated and lacked comparable “understandings and expectations.”[210] Because neither the purchaser nor buyer knew who they were transacting with, no promises regarding expected profits could have been made.[211] Further, the court noted that the marketing campaign to the initial buyers in the ICO was not distributed to the public.[212] The court held the “[p]rogrammatic sales of XRP did not constitute the offer and sale of investment contracts.”[213] Accordingly, in these circumstances, programmatic sales do not constitute the sale of a security.[214]
II. Applying Securities Law to Secondary Market Crypto Transactions
Federal securities regulators do not automatically classify a transaction as a security because a prior transaction with the same item was classified as such.[215] As a result, at crypto sale may be considered as an investment contract in one transaction but not an investment contract in another.[216] First, this Section discusses secondary market sales of crypto and the need to apply the Howey test separately to each sale of crypto. Next, this Section applies existing jurisprudence concerning other forms of crypto sales to secondary market transactions.
A. Crypto in the Secondary Market and the Hinman Speech
In contrast to the primary market, where investors purchase crypto directly from the company that creates and develops the crypto, the secondary market is a platform where buyers and sellers trade crypto with one another.[217] A key difference between the two markets is the absence of direct communication between the promoter and buyer on the secondary market.[218] Typically, secondary market sales take place through an exchange.[219] An example of a secondary sale is when a person sells a Bitcoin or a fraction of a Bitcoin on an exchange, such as CoinBase or Binance.[220] Although current jurisprudence holds that ICOs constitute investment contracts, such a conclusion is not determinative of secondary market sales.[221]
In 2018, William Hinman, Director of the SEC’s Division of Corporation Finance, gave a speech entitled “Digital Asset Transactions: When Howey Met Gary (Plastic),” commonly referred to as the Hinman Speech.[222] Hinman introduced the idea that a crypto asset could be an investment contract in one sale, but not in another subsequent sale.[223] He presented the idea that the focus should not be on the digital asset involved in the sale, but instead “on the circumstances surrounding the digital asset and the manner in which it is sold.”[224] In contrast, the court in SEC v. Terraform Labs rejected the notion that the same crypto asset could be deemed a security in some sales but not in others, emphasizing the economic reality of the overall scheme;[225] however, the court’s holdings in SEC v. Ripple Labs reflect the approach articulated by Hinman.[226]
In the Hinman speech, Hinman identified two situations in which crypto would not qualify as a security: when no central authority governs the asset and when the purchaser’s primary purpose is not investment.[227] Further, he singled out Ether and Bitcoin as decentralized crypto assets that lack the elements of common enterprise and expected profits through the efforts of others.[228] Crypto becoming successfully decentralized would negate the common enterprise element because the company would be run by the masses instead of through a central authority.[229]
To sell crypto on the secondary market through an exchange, a seller must first have the crypto loaded in their account.[230] The seller may then list their desired crypto for sale by placing an order at a specified price on the exchange’s platform.[231] Next, a buyer may purchase the offered crypto with either fiat currency or another crypto asset.[232] Because the buyer would be purchasing the crypto with either fiat currency or crypto, the first prong of the Howey test, “investment of money,” would clearly be satisfied.[233]
B. Current Jurisprudence Applied to Secondary Sales
Because a secondary market sale would satisfy the first element of the Howey test, its classification turns on the second and third elements of the Howey test. There are two scenarios in which a sale of crypto on the secondary market through an exchange could occur.[234] In the first scenario, a buyer is unknowingly purchasing crypto directly from the issuer.[235] In the second scenario, the buyer is purchasing crypto from a previous buyer, not the issuer.[236] The application of the second and third prongs of the Howey test is necessary for each of these two scenarios.
1. Common Enterprise in Secondary Market Sales
Although some circuits prefer establishing a common enterprise through horizontal commonality, other circuits have held that strict vertical commonality can also be used to establish a common enterprise.[237] Because most circuits largely disregard broad vertical commonality, this Comment will not examine the possibility of establishing a common enterprise through broad vertical commonality.[238] The first subsection applies the current jurisprudence of horizontal commonality to a secondary market sale, and the second subsection applies the jurisprudence of strict vertical commonality to such sales.
a. Horizontal Commonality applied to Secondary Market Sales
Horizontal commonality requires a relationship between investors, typically demonstrated by a pooling of funds,[239] which must be examined in the two scenarios listed above to determine whether sufficient pooling exists. This subsection will use the crypto XRP for the purposes of the two scenarios.
In the first scenario, Ripple Labs sells XRP, which is issued by Ripple Labs, on Coinbase to a buyer. Even if the buyer does not know the seller’s identity, Ripple Labs is likely pooling the currency used to purchase XRP with investments from other purchasers.[240] Under those circumstances, a common enterprise would exist through horizontal commonality.[241] However, if XRP, which uses the XRP ledger, functioned as a decentralized network at the time of purchase, then, according to the Hinman Speech, it would lack a centralized authority and thus be unable to support a common enterprise.[242]
In the second scenario, someone other than Ripple Labs sells XRP on Coinbase to a buyer. In this context, the existence of a common enterprise is unlikely, as the transaction involves a single buyer and a single seller, thereby eliminating the possibility of pooling funds or shared investor interests.[243] Accordingly, a common enterprise typically requires a relationship between multiple investors, often demonstrated by a pooling of funds.[244] In secondary market crypto sales, where a buyer purchases crypto from a seller who is not the issuer, the common enterprise element of the Howey test is unlikely to be satisfied.[245]
In circuits that require establishing a common enterprise through horizontal commonality, proving horizontal commonality depends on the specific circumstances surrounding the sale.[246] However, in the instances where the establishment of a common enterprise exists through horizontal commonality, the existence of a decentralized network would prove contrary.
b. Vertical Commonality applied to Secondary Market Sales
In vertical commonality ,the investor’s fortunes are tied to the success of the promoters or a third party.[247] Regardless of whether a secondary market crypto sale occurs between a buyer and the issuer or between the buyer and unaffiliated seller, a connection likely exists between the success of the promoters’ efforts and the overall success of the buyers investments.[248] Because an increase or decrease in the price at which the crypto was purchased could be tied to the success or failure of the promoters, the investors fortunes are linked to the efforts of the promoters, thereby satisfying vertical commonality.[249] For example, a buyer who recently purchased XRP, who then sees the price of XRP increase ten percent because the CEO of Ripple Labs announced the SEC is going to drop the suit against Ripple Labs.[250] The success of Ripple Labs’ promoters could drive an increase in the purchasers’ investment.[251] Consequently, because the financial fortunes of secondary market purchasers remain linked to the managerial and entrepreneurial efforts of the crypto project’s promoters, the common enterprise element of the Howey test would be satisfied through vertical commonality in the sale of crypto on the secondary market, even where the issuer is not a party to the transaction.[252] However, one could still argue that a successfully decentralized blockchain opposes a finding of a common enterprise through strict vertical commonality.[253]
2. Expectation of Profits in the Secondary Market
To satisfy the third prong of the Howey test, the expectations of profits must be “derived from the entrepreneurial or managerial efforts of others.”[254] Although Ripple Labs did not assert any authority over secondary sales, the court noted three distinct differences between institutional sales and programmatic sales.[255] Because the sale of crypto on the secondary market through an exchange provides the same anonymity between buyer and seller as programmatic sales, each of the three distinctions could also be applied to secondary market sales.[256] Subsection a details the three noted differences between an ICO and a programmatic sale, and Subsection b details further argues against the expectation of profits in secondary market sales of crypto.
a. Noted Differences between ICOs and Secondary Sales of Crypto
First, although the court declined to directly address secondary market sales, the district court stated that “the economic reality is that a [p]rogrammatic [b]uyer stood in the same shoes as a secondary market purchaser who did not know to whom or what it was paying its money.”[257] Therefore, even if the buyer on the secondary market purchased crypto with an “expectation of profit,” that expectation is not derived from the efforts of the seller.[258] This is evident because purchasers in the secondary market are typically unaware of the identity of the seller.[259]
Second, the programmatic buyers purchased crypto without any “contracts that contained lock-up provisions, resale restrictions, indemnification clauses, or statements of purpose,” unlike participants in ICO-style or institutional sales.[260] The Ripple Labs court found that the presence of such contractual arrangements in institutional sales supported a finding of an expectation of profits, whereas their absence in programmatic sales weighed against such a finding.[261] None of these would exist in the purchasing of crypto on an exchange in the secondary market.[262] Thus, the absence of these contractual features would be favorable to a finding against the expectation of profits.[263]
Third, the court considered the programmatic buyer to be a less sophisticated investor compared to investors in ICOs, such as institutional investors and hedge funds.[264] Amateur investors generally lack the sophistication to fully understand the marketing campaign used by crypto companies, from which an expectation of profits could be derived.[265] This reasoning suggests that the level of sophistication of a buyer on the secondary market would be even lower.[266] Thus, one could argue that a secondary market buyer lacks the sophistication required to expect profits derived from a crypto company’s marketing efforts.[267]
All three of these distinctions applied to secondary market sales would lead a reasonable person to believe the secondary sales of crypto would not possess an expectation of profits.[268]
b. Crypto correlation and the Crypto Market
Market driven price movements further weaken the argument that profits are derived from the efforts of others. Ripple Labs argues that the value of XRP may be influenced by broader “market forces,” including movements in major crypto such as Bitcoin and Ethereum, rather than solely by the entrepreneurial efforts of others.[269] “If the realization of profits depends significantly on the post-investment operation of market forces,” this does “not satisfy Howey’s third prong.”[270] These market forces can be observed in real time on exchanges such as Coinbase, where the broader crypto market often rises and falls with the price of Bitcoin.[271]
During the two-week period of February 23, 2025, to March 9, 2025, the price of XRP dropped over 18% following a 16% decrease in the price of Bitcoin, only to rise 17% several days later after Bitcoin increased by 15%.[272] Crypto correlation refers to the correlation between altcoin prices and Bitcoin.[273] Crypto correlation suggests that the crypto market will rise whenever the price of Bitcoin rises and will fall whenever the price of Bitcoin falls.[274] This relationship indicates that the value of individual altcoins, and the market as a whole, may be driven by broader market forces rather than the managerial or entrepreneurial efforts of others.[275]
While the court failed to respond to the claim made by Ripple Labs, Joyce v. Ritchie Tower Properties held that an item “which will increase or decrease in value because of many factors beyond the efforts of any of the parties” would show there is not an expectation of profit according to the Howey test.[276] The rise and fall of XRP’s price in tandem with Bitcoin price signifies factors outside “the efforts of any of the parties,” as discussed in Joyce, influenced its value.[277] Crypto correlation weighs against the expectation of profits in secondary market sales of crypto.
Additionally, in SEC v. Belmont Reid, the Ninth Circuit held that when an investor expects profits from the general market and not the specific item invested in, the third prong of the Howey test is not satisfied.[278] An example of this type of transaction is detailed in SEC v. Belmont Reid, where buyers of gold had an expectation of profit derived from general market forces rather than the direct efforts of the seller.[279] In Belmont Reid, purchasers acquired gold as a hedge against inflation and in anticipation of an increase in the entire global gold market.[280] The court stated that “[p]rofits to the [purchaser] depended upon the fluctuations of the gold market, not the managerial efforts of [the promoter,]”; the court held “that the profits in this case did not come ‘solely’ from the efforts of others, and that this transaction was not a [sale of] a security.”[281] Thus, a purchase of crypto on the secondary market does not satisfy the expectation of profit element when the buyer anticipates an increase in their investment due to an increase in the entire crypto market.
Crypto correlation and expected profits by the increase of the entire crypto market are examples of how the expectation of profits element is not satisfied in the secondary market sale of crypto. Further, these considerations suggest that secondary sales of crypto do not give rise to an expectation of profits under the Howey test.
Conclusion
Depending on the jurisdiction, a secondary market sale of crypto could potentially establish a common enterprise. Courts applying strict vertical commonality would likely find a common enterprise exists, but courts using horizontal commonality would likely find it more challenging to prove. Regardless of whether courts apply strict vertical commonality or horizontal commonality, a party may contest the existence of a common enterprise where the crypto’s blockchain is sufficiently decentralized.
Irrespective of the jurisdiction, the expectation of profits element is not satisfied in secondary market crypto sales. Anonymity between the buyer and the seller prevents the purchaser from forming an expectation of profits derived from the seller’s efforts. Further, consideration of crypto correlation and expectations driven by broader market forces precludes satisfaction of the expectation of profits element. Accordingly, the third prong of the Howey test is not met, and secondary market crypto sales do not constitute investment contracts.
Footnotes
*By Thomas Natal, J.D. Candidate 2027 Loyola University New Orleans College of Law; MBA 2024, Loyola New Orleans University. Special thanks to Molly Payne, Medina, and the Loyola Law Review sub and cite group for all of their work on this piece. Most importantly, I want to thank my wife, Jennifer Natal, for her continued love and support.
[1]NFL Scoreboard, ESPN, http://www.espn.com/nfl/game/_/gameld/330203025/raves-49ers (last visited Mar. 24, 2025).
[2]Billboard year-end hot 100 singles 2013, RYM, http://rateyourmusic.com/list/greenway/billboard_year_end_hot_100_singles_of_2013/ (last visited Mar. 23, 2025).
[3]Egg Prices By Year And Adjusted For Inflation, US Inflation Calculator, http://www.usinflationcalculator.com/inflation/egg-prices-adjusted-for-inflation/ (last visited Mar. 24, 2025).
[4]U.S. Presidents, UVA, http://millercenter.org/president/ (last visited Mar. 24, 2025).
[5]Bitcoin Price in 2013, BiTBO, https://charts.bitbo.io/price/2013 (last visited Feb. 23, 2026).
[6]Bitcoin USD Price (BTC-USD), yahoo! finance, https://finance.yahoo.com/quote/BTC-USD/history/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAC3kSjsQwbrqfWr9AIhI8djSI4TK3V_d_t2BblzN4SNVKWbkR5i-Fu_PMOrkHFIn7HmyWuMKc8RpWN4s01y1ksgOWQqQI0NFI9ubbDy2r57BFK193vu5qRoPEMoYq_L7tRLjQn8USOJxAtocgxAsi8bwP2nqjEMT1wOlWy8JFy4Z (last visited Feb. 23, 2026).
[7]See Bitcoin market cap crosses $1 trillion as buyers flood in, Reuters (Feb. 14, 2024, at 2:03 PM), https://www.reuters.com/technology/total-amount-invested-bitcoin-back-over-1-trillion-2024-02-14/.
[8]Id.; John Edwards, Bitcoin’s Price History, Investopedia (Dec. 3, 2025), https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp.
[9]When was Bitcoin invented? Bitcoin’s history and timeline, Ledger (Mar. 19, 2026), https://www.ledger.com/academy/topics/crypto/when-was-bitcoin-invented; What Was the First Crypto Exchange?, Cryptohopper, http://www.cryptohopper.com/blog/what-was-the-first-crypto-exchange-449 (last visited Feb. 23, 2026).
[10] Sean Gellis, A timeline of cryptocurrency regulation in America (Part 1): Have regulators been clear?, Ascend (Jan. 23, 2023), https://ascend.thentia.com/technology/cryptocurrency-regulation/.
[11]Id.
[12] Thomas Sweeney, The Billion-Dollar Bite: The History Behind Bitcoin Pizza Day, CoinTracker (June 16, 2025), https://www.cointracker.io/blog/bitcoin-pizza.
[13]See Bitcoin market cup crosses $1 trillion as buyers flood in, supra note 7.
[14]What is a crypto ecosystem?, Switch (July 26, 2023), http://coinswitch.co/switch/crypto/what-is-a-crypto-ecosystem/ (“The crypto ecosystem is a network of digital platforms and technologies that enable users to transact with crypto.”).
[15]Understanding Altcoins: Types, Benefits, and Market Potential, Investopedia (Aug. 10, 2025), https://www.investopedia.com/terms/a/altcoin.asp.
[16]SeeA Cryptocurrency Timeline: From eCash to Ethereum, Vincent, https://www.withvincent.com/research/cryptocurrency-timeline (last visited Feb. 18, 2026).
[17]Id.
[18]Digital assets push into the mainstream as global adoption surges, Morgan Stanley (Feb. 27, 2026), https://www.morganstanley.com/insights/articles/digital-assets-push-into-the-mainstream-as-global-adoption-surges.
[19] Press Release, U.S. Sec. & Exch. Comm’n, SEC Issues Investigative Report Concluding DOA Tokens, a Digital Asset, Were Securities, SEC, (July 25, 2017), http://www.sec.gov/newsroom/press-releases/2017-131.
[20]Id.
[21] Karl Montevirgen, Central bank digital currencies: How they could change money, Britannica Money, http://www.britannica.com/money/central-bank-digital-currency-cbdc (last visited Mar. 24, 2025).
[22]Id.
[23]In re BFXNA INC. d/b/a BITFINEX, CFTC No. 16-19 (June 2, 2016).
[24]See Press Release, U.S. Sec. & Exch. Comm’n, supra note 19.
[25]Id.
[26] Nathan Reiff, FTX Crypto Exchange Collapse: Causes, Consequences and Lessons, Investopedia (Nov. 5, 2025), http://www.investopedia.com/what-went-wrong-with-ftx-6828447.
[27]Id.
[28]Id.
[29]See id.
[30] Elizabeth Napolitano & Brian Cheung, The FTX collapse, explained, NBC News (Nov. 18, 2022, at 10:39AM), http://www.nbcnews.com/tech/crypto/sam-bankman-fried-crypto-ftx-collapse-explained-rcna57582.
[31]Id.
[32]Id.
[33] Bregje de Vet, Note: Securities Law the Issue with Designating Crypto Assets on the Secondary Market as Securities and Regulating Crypto Assets Appropriately, 47 U. Ark. Little Rock L. Rev. 47, 47 (2024).
[34] Press Release, U.S. Sec. & Exch. Comm’n,, SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX (Jan. 19, 2023) https://www.sec.gov/enforcement-litigation/litigation-releases/lr-25616.
[35] Zoe Niesel, Crypto Contracts: Jurisdiction and the Blockchain, 98 tul. l. rev. 917, 922 (2024).
[36] D. Larry Crumbley et al., How Should Cryptocurrencies be Defined and Reported? An Exploratory Study of Accounting Professor Opinions, 17 J. Risk Fin. Mgmt., 1, 1 (2024), https://www.mdpi.com/1911-8074/17/1/3.
[37]See Niesel, supra note 35, at 921.
[38]Id.
[39]See Sarah-Jane Morin, Tax Aspects of Cryptocurrency with a Focus on the Tax Aspects of Initial Coin Offerings, 32 prac. tax l. 12, 16 (2018).
[40]Decentralized, Cambridge Dictionary,
https://dictionary.cambridge.org/us/dictionary/english/decentralized#google_vignette (last visited Mar. 10, 2026) (defining “decentralized” as “used to describe organizations or their activities which are not controlled from one central place, but happen in many different places”).
[41]E.g., Crypto Regulation: How It’s Governed in the U.S. and Abroad, Purdue Global (July 3, 2025), https://www.purduegloballawschool.edu/blog/news/crypto-regulation. Decentralized currency refers to a form of currency that is not overseen or controlled by a central authority, such as a government or central bank. Id.
[42] CFI Team, Top 10 Cryptocurrencies: What are the largest cryptocurrencies?, CFI (Aug. 8, 2022), https://corporatefinanceinstitute.com/resources/cryptocurrency/top-10-cryptocurrencies/.
[43] Satoshi Nakamoto is a pseudonym for the developer of Bitcoin because the real identity is still unknown. Adam Hayes, Unveiling Satoshi Nakamoto: The Mysterious Creator of Bitcoin, Investopedia (Dec. 11, 2025), https://www.investopedia.com/terms/s/satoshi-nakamoto.asp.
[44] Niesel, supra note 35, at 923.
[45] Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, Perma.cc (Jan. 26, 2024, at 10:41AM), http://perma.cc/SJ5F-LXVG.
[46] Niesel, supra note 35, at 919.
[47] Coryanne Hicks, Different Types of Cryptocurrencies, NASDAQ (Dec. 7, 2022, at 10:01 AM), http://nasdaq.com/articles/different-types-of-cryptocurrencies.
[48] Niesel, supra note 35, at 924; Amanda Ciarci, Bitcoin vs. Altcoins: A 5-Step Guide, Fidelity Digit. Assets (May 31, 2024), https://www.fidelitydigitalassets.com/research-and-insights/bitcoin-vs-altcoinsa-5-step-guide. An altcoin is a digital currency other than Bitcoin. Id. The term comes from a combination of the terms alternative and coin. Id.
[49] Niesel, supra note 35 at 921 (defining a stablecoin as a coin designed to hold a stable value by being backed by a fiat currency or commodity).
[50] Hicks, supra note 47 (defining meme coins as coins created to follow social trends derived from a viral internet sensation and designed to build community).
[51]Crypto Tokens vs. Coins What's the Difference?, Crypto.com (June 20, 2022), http://crypto.com/university/crypto-tokens-vs-coins-difference.
[52]Id.
[53]Id.
[54]Id.
[55]Id.
[56] Hicks, supra note 47.
[57] Dylan Yaga et al., NISTIR 8202, Blockchain Technology Overview 1 (2018).
[58]What is Blockchain?, Ledger Academy, (Feb. 4, 2026), http://www.ledger.com/academy/what-is-blockchain.
[59] Yaga et al., supra note 57, at 13.
[60]Id. at 9.
[61]Id. at 15.
[62]Id.
[63] A publishing node refers to a node in a blockchain network that validates and broadcasts transactions and newly created blocks to other nodes. Understanding nodes in Cryptocurrency: a comprehensive guide, Prime XBT (July 17, 2025), https://primexbt.com/for-traders/nodes-in-crypto/.
[64] Yaga et al., supra note 57, at 15.
[65]Id.
[66]Id.
[67] Vet, supra note 33, at 57.
[68]See Yaga et al., supra note 57, at 15.
[69]Seeid. at 17.
[70]Id., at 18.
[71]Id.at 19-23.
[72]Id. at 19, 53.
[73]See id. at 19.
[74] Yaga et al., supra note 57,at 21.
[75]Id.
[76]Id.
[77] Vet, supra note 33, at 58.
[78] Deborah Jackson, The Next Energy Crisis: Cryptocurrency, 31 Am. Soc’y for Eng’g Educ. 21, 21 (2022).
[79]Id.
[80] Niesel, supra note 35, at 919 (emphasis added).
[81] Yaga et al., supra note 57, at 5.
[82]See William Hinman, Dir. Div. of Corp. Fin., SEC, Digital Asset Transactions: When Howey Met Gary (Plastic), (June 14, 2018), http://www.sec.gov/news/speech/speech-hinman-061418; infra note 28.
[83] Niesel, supra note 35, at 918.
[84]Id. at 918-19.
[85]Id. at 920.
[86] Letter from Paul Grewal, Chief Legal Officer, Coinbase Glob., Inc. to Vanessa A. Countryman, Sec’y, U.S. Sec. & Exch. Comm'n, Petition for Rulemaking - Digital Asset Securities Regulation (July 21, 2022).
[87] SEC v. Coinbase, Inc., 726 F. Supp. 3d 260, 274 (S.D.N.Y. 2024).
[88]Id.
[89] Thomas Lee Hazen, Principles of Securities Regulation 1(West Academic Publishing, 5th ed. 2021).
[90]Id. at 30.
[91]See SEC v. W.J. Howey 328 U.S. 293, 298-99 (1946) (the “Howey” test); infra Part II.B.2.
[92]See e.g., Howey, 328 U.S. at 298-99 (defining an “investment contract” within the meaning of the Securities Act).
[93] Hazen, supra note 89, at 1.
[94]See e.g., Howey, 328 U.S. at 298 (emphasizing that the definition of a security “embodies a flexible rather than static principle” focused on economic reality).
[95] Hazen,supra note 89, at 2.
[96]Id.
[97]Id. at 3.
[98]Id. at 8.
[99]Id. at 6-7.
[100]Id.
[101] 15 U.S.C. § 77(a).
[102] Hazen, supra note 89, at 17.
[103] 15 U.S.C. § 78(a) (establishing Securities and Exchange Commission and gave it authority secondary trading of securities).
[104] Hazen, supra note 89, at 18.
[105] 15 U.S.C. § 77(b)(a)(3).
[106] 15 U.S.C. § 77(b)(a)(1).
[107]Binance Holdings Ltd., 738 F. Supp. 3d at 38; SEC v Ripple Labs, 682 F. Supp. 3d 308, 321 (S.D.N.Y. 2023); SEC v. Telegram Group, 448 F. Supp. 3d 352, 368 (S.D.N.Y. 2020); SEC v. Kik Interactive, 492 F. Supp. 3d 169, 177 (S.D.N.Y 2020).
[108]See Hazen, supra note 89, at 31.
[109]See generally Howey, 328 U.S. 293 (articulating the test for an “investment contract” and finding that a land sale combined with a service agreement satisfied that definition).
[110]Id. at 297.
[111]Id. at 295.
[112]Id.
[113]Id. at 295-96.
[114]See generally id. at 299-300 (stating that defendants offered more than simple land contract and that the combination of the promotion and service contracts resulted in an investment contract).
[115]Howey, 328 U.S. at 298-99; Binance Holdings, 738 F. Supp. 3d at 39; Ripple Labs, 682 F. Supp. 3d at 321.
[116]See Howey, 328 U.S. at 298-99.
[117]Id.
[118]Id.
[119]RippleLabs, 682 F. Supp. 3d at 323.
[120]Howey, 328 U.S. at 299.
[121]Id.
[122]Ripple Labs, 682 F. Supp. 3d at 335 n.16.
[123]Seee.g., id. at 329-31; Kik Interactive, 492 F. Supp. 3d at 174; Telegram Group, 448 F. Supp. 3d at 368-71.
[124]See Sami Ahmed, Cryptocurrency & Robots: How to Tax and Pay Tax on Them, 69 S. C. L. Rev. 697, 703 (2018).
[125]Id.
[126]Token Generation Event (TGE): Definition and Explanation, Supra (Dec. 30, 2023), https://supra.com/academy/token-generation-event/.
[127]Ripple Labs, 682 F. Supp. 3d at 317.
[128]Id. at 317-18.
[129]Secondary Market, Black’s Law Dictionary ( 11th ed. 2019).
[130]Ripple Labs, 682 F. Supp. 3d at 316-17 (noting that purchasers in exchange-based transactions generally do not know the identity of the seller).
[131] Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir. 1994).
[132] Long v. Shultz Cattle Co., 881 F.2d 129, 140 (5th Cir. 1989).
[133]Id. (emphasis added).
[134]Id.
[135] Balestra v. ATBCoin, 380 F. Supp. 3d 340, 353 (S.D.N.Y. 2019) ; Revak, 18 F.3d at 87.
[136] Milnarik v. M-S Commodities, 457 F.2d 274, 276 (7th Cir. 1972).
[137]See Balestra, 380 F. Supp. 3d at 354 (“[F]ormalized profit-sharing mechanism” in the form of pro rata basis “is not required for a finding of horizonal commonality.”); KikInteractive, 492 F. Supp. 3d at 178.
[138]Revak, 18 F. 3d at 87.
[139]Id. at 87-88.
[140]Id. at 87.
[141] Hart v. Pulte Homes of Michigan Corp., 735 F.2d 1001, 1004 (6th Cir. 1984) (citation omitted).
[142]Revak, 18 F.3d at 87.
[143]Kik Interactive, 492 F. Supp. 3d at 178.
[144]See id.
[145]Id.
[146]Ripple Labs, 682 F. Supp. 3d at 322.
[147]Id. at 324.
[148]See e.g. Balestra, 380 F. Supp. 3d at 354; Telegram Group, 448 F. Supp. 3d at 369-70; Ripple Labs, 682 F. Supp. 3d at 325-26; Kik Interactive, 492 F. Supp. 3d at 178-79.
[149]Kik Interactive, 492 F. Supp. 3d at 175. “Kin was to be a cryptocurrency stored, transferred, and recorded on [the]… [Ethereum] blockchain.” Id. at 173.
[150]Id. at 178.
[151]Id. at 179.
[152]Id.
[153]Ripple Labs, 682 F. Supp. 3d at 316 (“XRP is the native digital token of the XRP Ledger, and the XRP Ledger requires XRP to operate.”).
[154]Id. at 325.
[155]Id. at 325-26.
[156]See id at 325.
[157]Long, 881 F.2d at 140.
[158]Revak, 18 F.3d at 87.
[159]Long, 881 F.2d at 140-41.
[160]Revak, F.3d at 87-88.
[161]Kaplan v. Shapiro, 655 F. Supp. 336, 340 (S.D.N.Y. 1987).
[162] Defendants' Memorandum of Law in Support of Their Motion for Summary Judgment at *23, SEC v. Ripple Labs Inc., 682 F. Supp. 3d 308 (S.D.N.Y. 2023) (No. 20-CV-10832), 2023 WL 9374925.
[163]See Long, 881 F.2d at 140-41.
[164]Id.
[165]Telegram Group, 448 F. Supp. 3d at 370.
[166]Id.
[167]Id.
[168]Id.
[169]Id. at 358 (noting that the crypto token Gram was designed to be used on the Telegram Open Network Blockchain).
[170]Id. at 361.
[171]Telegram Group, 448 F. Supp. 3d at 361.
[172]Id. at 370.
[173]Id. at 369-70.
[174]Id. at 370.
[175]Id. at 379.
[176] Defendants' Memorandum of Law in Support of Their Motion for Summary Judgment, supra note 162, at *23.
[177]Id.
[178]Ripple Labs, 682 F. Supp. 3d at 325 n.12.
[179]Id. at 315-16; Revak, 18 F.3d at 87-88; see also Telegram Grp., 448 F. Supp. 3d at 369-70.
[180]Howey, 328 U.S. at 299.
[181] SEC v. Int’l Loan Network, 968 F.2d 1304, 1308 (D.C. Cir. 1992).
[182]Howey, 328 U.S. at 298.
[183] Id; SEC v. Life Partners, 87 F.3d 536, 545–46 (D.C. Cir. 1996).
[184] United Horn. Found. v. Forman, 421 U.S. 837, 852 (1975).
[185]Id.
[186]Id.
[187]Id. at 852-53.
[188]See id.
[189] Vet, supra note 33, at 60 (crypto token used for specific features on decentralized Ethereum blockchain).
[190]See generally Hinman, supra note 82 (explaining that an asset purchased for use or consumption, rather than for investment, is less likely to involve an expectation of profits and therefore may fall outside the definition of a security).
[191]United Horn. Found., 421 U.S. at 852-53.
[192]Telegram Group, 448 F. Supp. 3d at 371.
[193] United States v. Zaslavskiy, No. 17 CR 647 (RJD), 2018 WL 4346339, at *6 (E.D.N.Y. Sep. 11, 2018).
[194]Balestra, 380 F. Supp. 3d at 355.
[195]Kik Interactive, 492 F. Supp. 3d. at 179-80.
[196]Id.
[197]Id.
[198]Id; Balestra, 380 F. Supp. 3d at 355.
[199]Ripple Labs, 682 F. Supp. 3d at 326.
[200]Id.
[201]Id. at 328 (emphasis added).
[202] Mary Gabrielyan, Programmatic Advertising: What It Is, and How It Works, and Why It Matters in 2026, AIDigital (Sep. 22, 2025), https://www.aidigital.com/blog/programmatic-advertising.
[203]See id.; Ripple Labs, 682 F. Supp. 3d at 328.
[204]Ripple Labs, 682 F. Supp. 3d at 328.
[205]Id.
[206]SeeTelegram Group, 448 F. Supp. 3d at 371.
[207]Id.
[208]Ripple Labs, 682 F. Supp. 3d at 329-30.
[209]Id. at 329.
[210]Id. at 330 (emphasis added).
[211]Id. at 329.
[212]Id. at 329-30.
[213]Id. at 330.
[214]See Ripple Labs, 682 F. Supp. 3d at 329-30.
[215]See id. at 329 n.16.
[216]Id. at 320-30 (distinguishing between institutional sales of XRP, which constituted investments contracts, and programmatic sales of XRP, which did not).
[217]See Hazen, supra note 89, at 2.
[218]Id.
[219]Id.
[220]See Secondary Market, supra note 129.
[221]See Ripple Labs, 682 F. Supp. 3d at 331.
[222] Hinman, supra note 82.
[223]Id.
[224]Id.
[225] SEC v. Terraform Labs, 684 F. Supp. 3d 170, 194 (S.D.N.Y. 2023) (claiming that both the initial agreements between purchasers and potential later distribution on secondary market contain securities).
[226]Ripple Labs, 682 F. Supp. 3d at 331 (holding that unlike the institutional sales classified as investment contracts the “Other Distributions” by Ripple were not investment contracts based on the “economic reality and totality of circumstances”).
[227] Vet, supra note 33, at 65.
[228] Hinman, supra note 82.
[229]See Niesel, supra note 35, at 927.
[230]SeeWhat is a Bitcoin Exchange? How It Works, Fees, and Example, Investopedia (Sep. 1, 2024), https://www.investopedia.com/terms/b/bitcoin-exchange.asp.
[231]Id.
[232]How to trade with limit, market, stop-limit, and bracket orders, Coinbase, https://www.coinbase.com/learn/advanced-trading/order-types (last visited Mar. 26, 2026).
[233]See Howey,328 U.S. at 301; Vet, supra note 33, at 74.
[234] Vet, supra note 33, at 72.
[235]Id.; Ripple Labs, 682 F. Supp. 3d at 328-29.
[236] Vet, supra note 33, at 72.
[237]Supra Section II.C.1.b.
[238]Id.
[239]Supra Section II.C.1.a; Curran v. Merrill Lynch, Pierce, Fenner & Smith, 622 F. 2d 216, 221, 224 (6th Cir. 1980).
[240]See Vet, supra note 33, at 74.
[241]Id.
[242]Id.
[243] See United Horn. Found., 421 U.S. at 852-53; See alsoMilnarik, 457 F. 2d at 277-78.
[244]See, e.g., Revak, 18 F.3d at 87.
[245] Vet, supra note 33, at 74.
[246]Ripple Labs, 682 F. Supp. 3d at 349-52.
[247]Supra Section II.C.1.b.
[248]See Vet, supra note 33, at 62.
[249]See Long, 881 F.2d 140-41.
[250]See Ben Weiss, XRP soars 10% after Ripple CEO says SEC will drop appeal, fortune crypto (Mar. 19, 2025, at 10:22 AM), http://fortune.com/crypto/2025/03/19/xrp-soars-brad-garlinghouse-ripple-sec-appeal-dropped/.
[251]See, e.g., Howey, 328 U.S. 298-99.
[252]Long, 881 F.2d 140-41 (recognizing vertical commonality where investor fortunes are linked to promoter efforts).
[253]E.g., Hinman, supra note 82.
[254]Supra Section II.C.2.
[255]Ripple Labs, 682 F. Supp. 3d at 328-30.
[256]Id. at 317-18.
[257]Id. at 329.
[258]Id.
[259]Id. at 328-29.
[260]Id. at 329.
[261]Ripple Labs, 692 F. Supp. 3d at 329.
[262]Id. 328-29.
[263]Id.
[264]Id. at 330.
[265]Id.
[266]See, e.g., id. at 328-29.
[267]See Howey, 328 U.S. at 299.
[268]Id. at 298-99; Ripple Labs, 682 F. Supp. 3d at 328-29.
[269]See Defendants' Memorandum of Law in Support of Their Motion for Summary Judgment, supra note 162, at *25.
[270] SEC v. Mut. Benefits Corp., 408 F.3d 737, 744 n.5 (11th Cir. 2005).
[271]What is Coinbase and How Does It Work? A Guide for New Crypto Users, CoinTracker, https://www.cointracker.io/learn/coinbase (last visited Apr. 12, 2026).
[272]XRP BTC Price (XRP-BTC), yahoo! finance, https://finance.yahoo.com/quote/XRP-BTC/history/?period1=1740344027&period2=1741478400, (last visited Feb. 23, 2026).
[273] Ozdemir, Dependent on BTC: Why Altcoins follow Bitcoin?, Swapzone (Sep. 12, 2024), http://www.swapzone.io/blog/altcoins-and-bitcoin.
[274]See id.
[275]See id.
[276] Joyce v. Ritchie Tower Properties, 417 F. Supp. 53, 55-56 (N.D. Ill. 1976).
[277]Id.
[278]See SEC v. Belmont Reid & Co., 794 F. 2d 1388, 1390 (9th Cir. 1986) (citation omitted).
[279]Id.
[280]Id. at 1389.
[281]Id.at 1390-91.
