While Bitcoin has been defined as a non-security by the Securities and Exchange Commission (SEC), the regulatory status of XRP, the third-largest cryptocurrency, is still up in the air.
The cryptocurrency being found as a security could, as fintech upstart Ripple put it, “upend and threaten to destroy the established XRP market more broadly.”
Despite these concerns, a lawyer with good knowledge of the blockchain space recently opined that “[it] sure sounds like a security,” referencing a California court’s ruling on a case regarding the cryptocurrency.
Is XRP a Security?
In an extensive Twitter thread, Stephen Palley — partner at Anderson Kill and an advisor/contributor to crypto outlet The Block — explained why he thinks XRP will most likely be deemed a security.
Some of the mentioned reasons for this assertion are as follows: “Ripple’s website provides advice on ‘How to Buy XRP’,”While defendant Ripple sells certain enterprise software products, the primary source of its income is the sale of XRP,” and “In 2013, defendant Ripple generated 100 billion units of XRP.”
There was an important ruling in the In Re Ripple lawsuit last week in California federal court.
Tl;dr: XRP sure sounds like a security.
My bet is that the Court will ultimately reach the same conclusion.
Thread? https://t.co/yTryM0s9eZ
— Palley (@stephendpalley) March 2, 2020
All this — and more explained in the thread — led the lawyer to the conclusion:
My takeway: if I am a betting man, this Court is eventually – someday, and I don’t know when – going to conclude that XRP is a security and there isn’t a thing that the best lawyers in the world can do to change this fundamental truth.
Palley is far from the first in the industry to have come to this conclusion.
Per previous reports from this outlet, a number of presentations/slide decks were shared on social media related to this debate. The presentations weren’t attributed to a name nor dated, though they conveyed a comprehensive case, including a number of dated posts and comments from Ripple and its executives, that “the company created XRP, and that the company and its agents are selling the asset in excess of need for profit.”
Notably, Ripple’s chief executive, Brad Garlinghouse, has rebutted the concerns that their go-to cryptocurrency is a financial security by the textbook definition of the term.
Threaten Ripple’s IPO Plans
Whether or not XRP is classified by the SEC or by other courts and regulators as a security, Jake Chervinsky, a lawyer who works for Compound (an Ethereum DeFi app), suggests that the existence of this debate may stall Ripple from issuing its shares on a public exchange:
I’m sure Ripple’s thinking about an IPO (like many Series Cs). I just doubt it’ll happen while [the cryptocurrency’s] security status remains uncertain. That’s not “FUD,” it’s basic business sense.
Public announcements carry more weight than private discussions.
I'm not accusing anyone of lying. I'm sure Ripple's thinking about an IPO (like many Series Cs). I just doubt it'll happen while XRP's security status remains uncertain. That's not "FUD," it's basic business sense.
— Jake Chervinsky (@jchervinsky) January 25, 2020
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