Why XRP can’t be classed as a security even if it was sold as one

Even though blockchain payments company Ripple advertised the cryptocurrency to the general public as an investment contract, U.S. Attorney John Deaton has detailed why the XRP coin cannot be categorized as a security.

U.S. Attorney John Deaton

Attorney John Deaton

Why Pro-Ripple Lawyer Says XRP Can’t Be Classed As A Security Even If It Was Sold As One

The key issue in the legal dispute between Ripple and the U.S. Securities and Exchange Commission is whether XRP should be classified as a security (SEC).

John E. Deaton, the inventor of CryptoLaw, claimed in a thorough Twitter thread on Friday that XRP “remains a digital code” even if Ripple has previously offered it as an investment contract.

Deaton pointed out that just because bitcoin (BTC) was utilized as a security didn’t make it one. Similarly, the LBRY Credits (LBC) case judge determined that when LBRY made direct sales, it sold LBC as an investment contract. LBC is still just a piece of software code, according to the lawyer. Even the SEC publicly acknowledged that the secondary market sale of LBC tokens did not amount to the sale of a security. Thus, LBC is not a security in and of itself. If so, the court’s judgment would apply to all its sales.

The same holds for XRP from Ripple. Deaton points out that, in the past, the commission appeared to suggest that the XRP coin is a security. “This novel and dangerous embodiment theory are how the SEC attempts to expand its jurisdictional reach into secondary market transactions. The theory stretches Howey beyond recognition,” he added.

However, in an investment contract situation, the underlying asset is never the security, and the unique Howey test necessitates a Howey analysis at the time of each offer or sale. Deaton is, therefore, quite sure that District Judge Analisa Torres will deny the SEC’s request for summary judgment in the XRP lawsuit.

As he examined the XRP security issue, Deaton referred to bitcoin as the crypto market’s guiding light. He says it was originally “packaged, marketed, offered and sold” as an investment contract of the digital asset. For condominiums, chinchillas, and beavers, this is true. Even though they can be sold as investment contracts, they do not thereafter become securities.

In December 2020, the SEC began action against Ripple, alleging that the company had been selling unregistered security since 2013. The high-profile case severely damaged Ripple’s reputation is still ongoing two years later. Barring an unusual settlement, a decision is anticipated in the first half of 2023. Most XRP supporters think Ripple has the advantage in the situation and are confident the business will ultimately win.

A ruling in the SEC v. Ripple litigation is most likely to provide the regulatory certainty that the cryptocurrency industry has long yearned for.

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