28 May 2021 — The Howey Test is used for determining whether a transaction qualifies as an “investment contract,” and therefore would be considered a security.
The US Supreme Court established four criteria to determine whether an investment contract exists. So does NFT fall under an investment contract?
1. An investment of money
The common enterprise package NFTs as an investment that can appreciate, promising artists and collectors that there will be a value increase.
2. In a common enterprise
The common enterprise (a company) created and decided the number of NFTs to sell on their website for a very limited period of time. Although NFTs are not common enterprise but they are sold by a common enterprise to investors
3. With the expectation of profit
The secondary marketplace provides a buy-sell platform that lists the increasing prices that have been transacted throughout the repeated process of buying and selling and thus creating liquidity and expectation of profits from the buyers. The artist gets royalties on every transaction from the beginning until the end of the universe
4. To be derived from the efforts of others
The expectation of profit comes solely from the common enterprise aka the promoter / third-party