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- TIMESTAMPS -
2:06 Ripple Suit Timeline
4:33 What is the SEC?
5:51 Howey Test Explained
7:24 Howey Test & Cryptocurrency
9:43 SEC Arguments
11:55 SEC Suit Summary
16:43 Ripple Counter Arguments
18:53 Implications For XRP
️ Useful Links ️
► Original Ripple SEC Suit: https://thegraph.com/explorer/
► Annotated Ripple SEC Suit: https://static1.squarespace.com/static/5ac136ed12b13f7c187bdf21/t/5fe2c2...
► Ripple Wells Submission: https://network.thegraph.com/
► SEC Ripple Suit Analysis By A Law Professor: https://cointelegraph.com/news/sec-vs-ripple-a-predictable-but-undesirab...
Ripple Suit Timeline
Ripple had been in talks with the SEC for well over a year before this lawsuit. This pre-Wells period seems to have turned sour sometime in October this year when Ripple began signaling its intentions to leave the United States due to regulatory ambiguity. After a handful of peculiar headlines about Ripple in the weeks that followed, Ripple revealed the SEC was pressing charges on December 21st, and they were officially announced by the SEC the next day.
What is the SEC?
The Securities and Exchange commission or SEC is the regulatory authority responsible for overseeing securities in the United States. All securities must be registered with the SEC before they can be bought and sold, otherwise they are considered unregistered securities and are therefore illegal to buy and sell. The SEC decides whether a given cryptocurrency is a security using something called the Howey Test.
Howey Test Explained
The Howey Test has four criteria that all need to be met for an asset to be considered a security. 1. It requires an investment of money or something else of value to get. 2. it is a common enterprise, meaning the price action of the asset is universal to everyone holding it. 3. a reasonable expectation of profit. 4. the expectation of profit comes from the efforts of managerial efforts of a third party.
Howey Test & Cryptocurrency
Some cryptocurrencies are almost always considered to be securities, namely tokens sold during an ICO. This is because it is rare for a cryptocurrency project to be offering their own native token or a finished product at the outset, meaning that they meet the fourth criteria of the Howey Test. Other cryptocurrencies have managed to dodge this fourth criteria because they are “sufficiently decentralized” – there is no definitive third party driving the expectation of profits.
The SEC is arguing that XRP is an unregistered security. Ripple, Brad, and Chris all sold XRP between 2013 and 2020, this means they sold unregistered securities, which is against the law. The suit also reveals questionable business practices by Ripple.
SEC Suit Summary
After reviewing all of the facts, which are too long to list here, the SEC concludes that XRP is a security. As a cryptocurrency, XRP meets the first three criteria of the Howey Test and meets the fourth criteria because XRP has no tangible use case.
Ripple is arguing that no, XRP is not a security, and it does have a use case as a QUOTE “bridge currency”. Ripple raises the fact that the DOJ and FinCEN classified noted XRP as being a virtual currency when they settled their suit against Ripple in 2015.
Ripple also argues that the sales of XRP by Ripple, Brad, and Chris had no effect on the price of XRP, and that its price is exponentially more dependent on Bitcoin than anything either of the three parties could do. Finally, Ripple highlights the fact that no country has classified XRP as a security.
Implications for XRP
If XRP is labeled a security, it will probably be the end of Ripple’s aspirations of being the payment network for financial institutions. It will become unavailable to most US investors, and the price will consequently tank even further than it has. The silver lining is that if Ripple manages to win this lawsuit, those who bought the dip will be headed for the moon when XRP bounces back.
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading cryptocurrencies poses considerable risk of loss. The speaker does not guarantee any particular outcome.
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