The SEC has taken a proactive approach to regulating the cryptocurrency industry, recognizing the potential risks and benefits of digital currencies. The SEC's regulatory framework for cryptocurrency is based on the Howey test¹, which was established by the Supreme Court in Howey v. SEC in 1946. The Howey test is used to determine whether a particular investment is a security, and therefore subject to SEC regulation.

Under the Howey test, an investment is considered a security if it meets the following criteria:

1. It involves an investment of money
2. There is an expectation of profits from the investment
3. The investment is in a common enterprise
4. Any profits are generated from the efforts of a third party

If an investment meets these criteria, it is considered a security and subject to SEC regulation.

The SEC has applied the Howey test to cryptocurrency in a number of cases, including the high-profile case against Telegram in 2020. In this case, the SEC alleged that Telegram's $1.7 billion token sale was an unregistered securities offering, as the tokens met the criteria of the Howey test.

The SEC has also provided guidance on cryptocurrency through a series of staff statements and enforcement actions. These statements and actions provide clarity on the SEC's position on various aspects of cryptocurrency, including initial coin offerings (ICOs), cryptocurrency exchanges, and cryptocurrency investment funds.

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