XRP News Today: Ripple Challenges SEC on Crypto Securities Classification

Ripple, the blockchain company behind the cryptocurrency XRP, has submitted a letter to the U.S. Securities and Exchange Commission (SEC) arguing that fungible cryptocurrencies should not be classified as securities when traded in secondary markets. This position is based on legal precedent and the lack of defining legal characteristics that typically qualify an asset as a security. Ripple's Chief Legal Officer, Stuart Alderoty, emphasized that most fungible crypto assets do not meet the criteria for securities in secondary transactions.

In its May 27 letter, Ripple cited US attorney and crypto law thought leader Lewis Cohen to support its claim. In his widely cited 2022 paper, “The Ineluctable Modality of Securities Law: Why Fungible Crypto Assets Are Not Securities,” he wrote: “[T]here is no current basis in the law relating to ‘investment contracts’ to classify most fungible crypto assets as ‘securities’ when transferred in secondary transactions.” Cohen explained that in secondary transactions, an investment contract transaction is generally not present. He further claimed that fungible cryptocurrencies “neither create nor represent the necessary cognizable legal relationship between” a legal entity and the holder that is the “hallmark of a security.”

Ripple also referenced SEC Commissioner Hester Peirce's May 19 “new paradigm” speech. She said she’d been voicing her dissent with the regulator’s approach to crypto, adding: “Having emerged from the crypto dissent years, I am glad to be able speak to you today as the head of the Commission’s Crypto Task Force about a rational and coherent path forward and a new paradigm at the SEC.” Peirce said that the SEC’s “approach to crypto in recent years has evaded sound regulatory practice and must be corrected.” She also said that most cryptocurrencies are not securities, adding: “Most currently existing crypto assets in the market are not [securities]. My supplemental answer is that economic realities matter and non-security crypto assets may be distributed as part of an investment contract, which is a type of security.”

The SEC had viewed a large portion of digital assets as securities, with the regulator’s former chair, Gary Gensler, stating in 2023 that most of the crypto market falls under the securities bracket. This stance led to a protracted legal battle between the SEC and Ripple. The lawsuit first began at the end of 2020, when the SEC took action against Ripple and its executives, claiming that XRP sales constituted unregistered security offerings. Still, after the government’s stance on crypto changed with the election of current US President Donald Trump, Ripple has mostly won the battle, with the SEC recently dropping its appeal against a ruling favorable to the company.

In its recent letter to the SEC, Ripple also cited a ruling in the case noting that “the court held that certain of Ripple’s historical institutional sales of XRP were investment contracts,” while the secondary sales were not. Furthermore, the judge “determined that XRP itself is not a security.”

Ripple's argument is significant because it challenges the SEC's approach to regulating cryptocurrencies. The SEC has traditionally taken a broad view of what constitutes a security, often leading to uncertainty for companies and investors in the crypto space. Ripple's position could set a precedent for how other fungible cryptocurrencies are treated in secondary markets, potentially providing more clarity and stability for the industry.

The SEC has not yet responded to Ripple's letter, but the company's arguments could influence future regulatory decisions. Ripple's efforts to engage with the SEC and seek clarity on the regulatory status of cryptocurrencies are part of a broader trend in the industry. Many companies and investors are calling for more regulatory certainty, as the lack of clear guidelines has created uncertainty and hindered innovation.

Ripple's position on fungible cryptocurrencies in secondary markets is a significant development in the ongoing debate over how to regulate cryptocurrencies. The company's arguments could have far-reaching implications for the industry, potentially providing more clarity and stability for companies and investors. As the regulatory landscape for cryptocurrencies continues to evolve, Ripple's efforts to engage with the SEC and seek clarity on the regulatory status of cryptocurrencies are an important step towards creating a more stable and predictable regulatory environment.