SEC v. Ripple: Another Document Proves XRP Is Not a Security

SEC v. Ripple: Another Document Proves XRP Is Not a Security.

Since there is no regulatory clarity from the United States Securities and Exchange Commission, the issue of what cryptocurrency constitutes security has been a major topic of discussion. 

Several cryptocurrency and legal experts have weighed in to the debate to get a perfect understanding of the topic, which could help the crypto industry thrive in the United States. 

Following a lawsuit slammed by the U.S. SEC over fintech firm Ripple, the debate about what should be considered security has heightened. 

Legal Advice to SEC

Perkins Coie, an international law firm, sent a 49-page document to Williams Hinman on March 26, 2018, in a bid to provide legal advice on the classification of cryptocurrencies. 

Excerpts of the letter read: “a token by itself is never an investment contract […] The investment contract arises from the understanding as to how the token will be developed into something of useful value.” 

The letter, which serves as legal advice to the securities agency, was written three months before Hinman’s 2018 speech, where he declared that Bitcoin and Ethereum are non-security. 

Hinman also indicated that Ripple (XRP) is not a security, a comment that was backed by former SEC chairman Jay Clayton in his letter to Congressman Ted Budd in 2019. 

SEC Thinks Otherwise 

However, despite these supporting facts that could have laid to rest the argument as to whether XRP is a security, the SEC has continued to maintain that the cryptocurrency falls under its jurisdiction. 

According to the SEC, both Hinman’s 2018 speech and Clayton’s letter to Congressman Budd are merely personal opinions and do not represent the views of the entire agency. 

XRP Functions as a Currency

Ripple’s XRP has functioned as a currency, as it is mostly used in cross-border settlements via its technology, the RippleNET. 

The use of XRP in cross-border settlements has resulted in several countries declaring cryptocurrency as a non-security. 

Canada, the United Kingdom, Switzerland, and the United Arab Emirate (UAE) are in the list of countries that do not consider XRP to be a security. 

While there is no clear regulation that would easily aid the classification of cryptocurrencies in the United States, the SEC has still maintained that XRP is a security. 

However, with President Joe Biden signing the cryptocurrency executive order earlier this month, it is expected that a clearer rule for the nascent industry will be established.