Ripple to Face Sue by The SEC Over XRP’s Status as a Security

The moment has come. Apparently, the SEC is ready to sue Ripple for issuing XRP as a non-registered security.

After several years of uncertainty, it seems that U.S. regulators would be willing to answer once and for all the most crucial question that any member of the XRP Army has ever asked. Is XRP a security?

According to Fortune, the American company received a notice on Monday that it would be sued by the SEC. Brad Garlinghouse, Ripple’s CEO, did not deny the news and, in fact, spoke out on his Twitter account, claiming that the move undermined American innovation.

What’s Going on With Ripple, XRP and the SEC

The SEC has already ruled on Bitcoin and Ethereum, assuring that neither are securities. This gives some freedom to the exchanges and users to operate with them.

However, speculation about whether or not XRP passes the famous Howey Test has always been up for grabs. Many experts claim that XRP has all the features of a security, while others argue that it doesn’t. But in the absence of a clear stance from the SEC, the debate had no clear winner.

The Howey Test
They Key Aspects of the Howey Test. Image: Inwara

Now, the alarms are sounding. If XRP is indeed classified as a security, Ripple would have to pay a hefty fine for the offense committed —just as what happened with the KIN case. Likewise, the token would probably be delisted from many major exchanges that would not be authorized to accept it, Ripple would be subject to stricter control, and it’s interesting to see what would happen to the price of XRP.

Unlike Bitcoin and Ethereum, which were issued without a central entity to benefit from it, Ripple’s history with XRP is very different. In very general terms, the developers of XRP issued the tokens, founded a company (Ripple), and then self-gifted a large number of tokens, assigning about 80% of the supply to the company they created and managed.

This has resulted in many analysts seeing XRP as an expression of Ripple’s value in the same way that a stock or other security would be.

Ripple Is In Combat Mode

Brad Garlinghouse has already announced that he is putting on the boxing gloves: “Make no mistake, we are ready to fight and win,” he said on his Twitter account, “this battle is just beginning.”

Ripple’s CEO is already preparing for the upcoming legal battle. In a document posted on Ripple’s official blog, the company made several arguments that contradict the SEC’s claims. They attack various aspects, from the technical to the geopolitical, asserting that Bitcoin and Ethereum were controlled by China —the United States’ political rival.

Policy reasons counsel against finding XRP to be an investment contract.

A. Innovation in the cryptocurrency industry will be fully ceded to China. The Bitcoin and Ethereum blockchains are highly susceptible to Chinese control because both are subject to simple majority rule, whereas the XRPL prevents comparable centralization

The arguments generated diverse reactions. On the one hand, Ripple’s supporters —such as the president of SBI Holdings, Yoshitaka Kitao— argued that XRP was obviously not a security. Mr. Yoshitaka added that other regulators — like Japan’s FSA— have already declared XRP not a security.

But on the other hand, critics like Vitalik Buterin scoffed at Ripple’s desperation and the lack of seriousness of some arguments.

The price of XRP did not react very well to the news. In the last 24 hours, it dropped 17.2%, one of the worst crashes in the Top 100 of the largest cryptocurrencies by market cap.

XRP price
XRP-USD. Image: Cooinmarketcap


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