Bytom Passing Howey Test and Considered as Non-security Asset
27 October, Xinhua News-Velton•Zegelman PC, the law firm based in San Francisco, has released a Howey Test report on Bytom. The project’s economic whitepaper and the technical whitepaper have been scrutinized by the firm. With reference to the legal advice by the Chinese Zhong Lun Wende law firm, Velton•Zegelman PC concludes that Bytom is not securities and therefore no need to comply with SEC securities regulations. This is a major milestone as it is the first China-based blockchain startup that is considered legally compliant and non-security asset in US.
Under the Howey Test, a transaction is an investment contract if:
It is an investment of money
There is an expectation of profits from the investment
The investment of money is in a common enterprise
Any profit comes from the efforts of a promoter or third party
Velton•Zegelman PC has analyzed Bytom following the protocol.
(1) Investment of money. Here the investment includes not only raising capital, assets, cash, but also goods, services or promissory notes. Because buyer need to pay cryptocurrency in order to obtain BTM. Therefore Bytom fits the first article of Howey test.
(2) Invest in a common cause. Courts in different parts of the United States use different tests to analyze the existence of a common cause. The main methods include: (a) the lateral general comparison; (b) the general comparison in narrow sense; (c) general comparisons in broad sense. From the perspective of general comparison in narrow sense, income of BTM investors does not rely on the platform, so BTM does not meet the second article of “Howey Test”. In the general comparison in broad sense, the success of the investor is dependent on his expertise. As for BTM, the success of investors depends on his own expertise rather than the platform. So in general, BTM does not meet the second article of “Howey Test”.
(3) expectation of profits from the investment. But profit or income does not mean that the investment contract is securities.
(4) Any profit comes from the efforts of a promoter or third party. Because investors get profits from the applications of BTM, not just holding, And applications varies, therefore it’s not compatible with the 4th article.
After running “Howey Test” on BTM, Velton • Zegelman PC believes that BTM is consistent with article 1, dependent on article 2 and not compliant with No.3 and No.4. So the firm eventually believes that BTM does not meet the definition of securities. Correspondingly, the federal securities law does not apply to BTM’s issuance and follow-up transactions. However, the firm reminds that one must not rule out SEC’s acknowledgement of blockchain projects like Bytom as securities.
Duan Xinxing, founder and CEO of Bytom, believes that
“For mainstream adoption of blockchain and Fintech companies, operation of which must be legally compliant. Decision-makers shall not ignore innovations. Entrepreneurs shall not challenge policy and laws. As a blockchain entrepreneur, we will promote innovation and compliance of Bytom simultaneously to ensure sound and sustainable development of the project.”
Bytom was initiated in June 2017 and is the first public blockchain project based in Hangzhou China. Bytom is committed to becoming the world’s largest public blockchain platform of asset registration, circulation, interoperability. Aside from the traditional compatibility with UTXO design, the system also supports national encryption standard, AI-ASIC chip friendly, POW algorithm and other innovative solutions. In terms of governance, a three-layer structure is employed: the General Assembly, the Autonomous Committee and the Executive Committee. A quarterly report has been disclosed regularly. Renowned legal firm has been hired to evaluate and track Bytom’s organizational structure, operations, risk control and other aspects.
“Our next step is to promote legal compliance, licensed operation across the world while cooperating with minastream license-holders, trading exchange and technical partner.”
Said Duan Xinxing.