On December 22, 2020, the US Securities and Exchange Commission filed a complaint against Ripple Labs. The complaint mainly referred to the fact that Ripple had consistently sold unregistered and tax-exempt securities in the form of XRP tokens for years.
The complaint, filed on the last day of former Securities and Exchange Commission Chairman Jay Clayton, has drawn a great deal of public comment, which is commonplace for SEC lawsuits against major players in the crypto space. The unusual thing about the SEC and Ripple comparison is the reaction of a large segment of XRP buyers.
On the topic: SEC vs. Ripple: An Expected but Unsolicited Development
On January 1, 2021, a group of XRP buyers led by attorney John Deaton applied for Mandamos in Rhode Island, asking the court to order the SEC to exclude XRP tokens from a pending lawsuit against Ripple on the following grounds: . That the plaintiffs did not win investment contracts. The appeal alleges that the SEC, led by its then president Clayton, abused its authority in a politically motivated retaliation against Ripple. Regardless of Clayton’s motives, the petition deserves a closer look.
The public responded to the petition
The public’s reaction to the lawsuit filed by the SEC was swift and strong. In the days since the stock was announced, the market value of XRP decreased by a staggering 63%, losing nearly $ 15 billion. While a review of CoinMarketCap-backed price data shows that much of that value has recovered with the explosion of the crypto market, at the time of writing, XRP has not reached the price it was trading before the lawsuits were filed – as has been the case with other leading digital currencies. Bitcoin (BTC) or Ether (ETH), which grew from $ 19,500 on December 15, 2020 to over $ 60,000 on March 14; And from $ 589 on Dec 15, 2020 to over $ 1,924 on March 13, 2021, respectively.
A large part of the problem, from a buyer’s point of view of XRP, is the apparent decision by a large number of cryptocurrency platforms and platforms to remove XRP or stop selling to US customers. Binance.US, Bittrex, Blockchain.com, Coinbase, Crypto.com, eToro, OKCoin, and Wirex (cryptocurrency company) are among the more than 50 companies that have discontinued trading XRP. Since regulated exchanges are not permitted to trade unlisted securities, this is a logical decision for these companies, but the consequences of these changes are likely to be devastating for Ripple and the people holding XRP tokens.
Unfortunately, only bad news comes. The price drop and the removal of XRP from the list were accompanied by the liquidation of XRP holdings from US investment firms such as Grayscale and Bitwise Asset Management. Whatever happens, major investors are likely to make XRP wary for the foreseeable future.
Deaton claims and is XRP a guarantee?
As mentioned above, on January 1, 2021, a petition was filed in Rhode Island to terminate the SEC’s claim against XRP, which is owned by the acquisition group. John Deaton, an attorney with experience in class litigation, alleges in the petition that he and others like him did not purchase XRP as an investment and did not consider it a collateral. Paragraph 45 of the complaint assumes that XRP is a currency, virtual currency, commodity or instrument and is therefore not a security. To support this conclusion, Deaton argues that XRP has a number of uses that largely prevent it from being classified as collateral.
The memorandum in support of the petition indicates that XRP serves a number of legitimate functions, such as increasing the speed of international payments, acting as an alternate or substitute payments for currency, and as a means of currency exchange. The petition claims that these helpful cases show that XRP is not a guarantee. Unfortunately, the SEC has never accepted the notion that instruments alone mean that an asset is not a collateral. According to the Securities and Exchange Commission, the question is how an asset is sold and how well the expectations of the buyers are met.
The SEC’s position in this regard is not limited to digital assets. For example, the Securities and Exchange Commission published a post in 1969 explaining that while whiskey can be used as an alcoholic beverage, some of the proceeds from the sale of whiskey can still be a contract of investment:
“These receipts are not offered or sold to the buyer of the whiskey receipt for the purpose of acquiring and possessing the whiskey. Instead, in these cases, the buyer invests in a scheme that assumes that others will provide services that will increase the value of the whiskey and, ultimately, sell the whiskey as well under the circumstances.” Which is expected to bring profit to the buyer. The investor. “