The response to the recent court ruling concerning Ripple’s XRP token seems rather perplexing. Following a two-year legal battle initiated by the U.S. Securities and Exchange Commission, a judge concluded that XRP is considered an unregistered security when sold to institutional buyers, but not when purchased by individuals.
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The suit alleged that they failed to register their token XRP as security before selling approximately $1.3 billion worth of it. Subsequently, Twitter witnessed years of disputes, and legal developments gradually unfolded as Ripple sought to argue against the notion that XRP should be categorized as a security.
Despite the fact that Ripple is a company associated with XRP, one might logically assume that XRP purchasers expect to profit from the managerial or entrepreneurial efforts of the token issuers, which aligns with the fundamental definition of a security. However, XRP’s proponents insist on referring to it as a cryptocurrency, asserting that it cannot be classified as a security.
Following last week’s news, XRP experienced an unsurprising rally. The token’s price almost doubled, and trading volumes saw a staggering increase of 1,351%.
Yet, Thursday’s news did little to clarify the legal position of cryptocurrencies in the eyes of U.S. law. While we understand the SEC’s stance – considering everything as a security except Bitcoin and perhaps Ethereum – it’s important to note that the SEC’s perspective isn’t the final say on this matter. Consequently, we now find ourselves in a peculiar situation where a crypto asset is occasionally regarded as an unregistered security. The distinction lies between retail and institutional buyers since retail investors did not directly purchase XRP from Ripple, thereby negating any investment contract between them and Ripple.
However, I still find this situation nonsensical. It’s akin to suggesting that someone who purchases a house as an investment is acquiring real estate, while someone who buys a house to live in isn’t acquiring real estate. Such reasoning is absurd. Either XRP is a security or it isn’t – these should be mutually exclusive.
Hence, JMP Securities, I must respectfully disagree; this does not qualify as a revolutionary triumph for the cryptocurrency sector. Despite your publication of a research note asserting that this ruling “bestows legal lucidity and protection concerning the definition of a security, with an overall outcome favoring the industry’s prevailing arguments.
Instead, the court’s decision regarding the question of “Is this a security?” echoes the often ambiguous nature of finance – the answer is simply, “it depends.”
