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Cryptocurrencies in the SEC’s Crosshairs: Are They Headed for Regulation Like Stocks and Bonds?

LAWCryptocurrencies in the SEC's Crosshairs: Are They Headed for Regulation Like Stocks and Bonds?

Federal judges in the United States are analyzing whether cryptocurrencies should be subject to the same regulations as stocks and bonds. The outcome of their considerations may significantly influence the future of the cryptocurrency market and digital currencies themselves.

Howey’s Test

For over a decade, cryptocurrency pioneers envisaged digital coins as an alternative finance arena, operating beyond the control of large banks and governmental regulatory institutions. However, as digital currencies like bitcoin and ethereum gained popularity, the cryptocurrency sector had to face the law eventually. The Supreme Court of the United States established the so-called Howey’s test in 1946. This test is an analysis of the legal nature of a financial instrument, determining under what circumstances it falls under the same strict regulations as stocks or bonds.

The US Securities and Exchange Commission (SEC), striving for a more detailed regulation of virtual currencies, found the 1946 case and uses it to levy charges against entities in the cryptocurrency industry for trading unregistered securities. The SEC then demands to supervise their activities.

The Howey’s test is based on an investment case in a Florida citrus plantation owned by William John Howey. Howey offered to sell a portion of his plantation and then lease it, while taking over the cropping burden and sharing the profits with the land buyers. When investors started losing money due to crisis and plagues, the case reached the Supreme Court. Judge Frank Murphy then developed the test, known today as Howey’s test, aimed at determining whether a given contract can be considered an investment agreement subject to the regulations of the securities act.

Three Criteria

Howey’s Test consists of three main criteria: monetary investment, common enterprise, and profits dependent on the effort of others. The first element of the test is the investor’s financial contribution, which can take various forms, not only cash but also other assets or means. The second element relates to a common enterprise, the engagement of resources by various investors in the hope of profit. A common enterprise can take various forms, from an investment company to another organized system, where investors pool their resources. The third element of the test refers to profits dependent on the effort or work of others (managers or issuers). If investors rely on the work of third parties, it may point to an “investment contract”. If all three criteria are met, a given transaction or offer may be considered an “investment contract” and become subject to securities regulations.

Bitcoin and Ethereum as a variant of traditional currency

Howey’s test is widely used in the American legal system, especially in the context of cryptocurrencies and digital tokens, to determine whether a given token offer is considered a security subject to the supervision of the Securities and Exchange Commission. Currently, bitcoin and ethereum are not treated by the SEC as securities. The Commission recognized them as a kind of variant of fiat currency. Rulings and decisions of the US Supreme Court could change that.

Polish Financial Supervision Authority’s supervision of cryptocurrencies in Poland

On January 27th, 2023, the Polish Financial Supervision Authority (PFSA) issued a statement addressing questions regarding its authority over legal standards enforcement by service providers operating in areas like cryptocurrency exchanges and exchange offices. The institution emphasized that the PFSA does not license, register, or supervise such exchanges and offices. It also does not approve of this type of activity and lacks any instruments that could assist persons harmed by such activities.

The Office reminds that according to the Act on Counteracting Money Laundering and Terrorism Financing (AML Act), entities providing services in the field of cryptocurrency trading have the status of obliged entities, which before starting operations in Poland must be entered into the register maintained by the General Inspector of Financial Information, as well as into the business activity register. This second register regarding virtual currency trading is maintained by the Polish Minister of Finance. However, the PFSA itself is not the supervisory authority. It could only supervise if the entities running the cryptocurrency exchanges and offices provided payment services – but only in this area of payment services they offer. The activities of cryptocurrency exchanges and offices is not under its supervision.

In February 2023, Gary Gensler, the chairman of the US Securities and Exchange Commission, informed in an interview with New York Magazine that, in the SEC’s opinion, all cryptocurrencies besides Bitcoin should be treated as securities. As he argued, all these digital currencies can be created in tax heavens. A month later, the SEC approved 11 Bitcoin spot ETF funds. In February 2024, during a conversation on CNBC, Gensler somewhat denied his earlier statements about strong acceptance for Bitcoin. He explained that the approval of these eleven spots in no way constituted approval of Bitcoin itself. The Commission was solely concerned with securing the exchange trade of this cryptocurrency. And the SEC considered trade in those eleven funds as secure.


Cryptocurrency investors still operate in uncertainty regarding the future tax-legal effects of owning digital currencies. At the moment, from a tax perspective, their sale (or more precisely: exchange for a means of payment, goods, service, or property right other than a virtual currency or income from settling other obligations with a virtual currency) is treated the same way as income from securities – as qualified for the capital gains income group. Gains from the sale of cryptocurrencies must be settled according to the general tax scale – 18% or 32%. In the case of operating a business involving virtual currency trading, it’s possible to be taxed with a 19% flat tax. The exchange of bitcoins is exempt from VAT. Hence, any rulings of the US Supreme Court regarding whether cryptocurrencies should be treated on par with stocks and bonds may only influence the decision in Poland about whether to bring the trade of digital currency under the supervision of the PFSA. And that would mean raising the bar for entities operating in the cryptocurrency industry in terms of admitting them to operate on the Polish market.

Author: Robert Nogacki, legal advisor, managing partner, Skarbiec Law Firm, specializing in legal, tax, and strategic advisory for entrepreneurs.

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