Regulatory clarity has been shaping slowly for the crypto industry. Rules are changing in different parts of the world. And the fear of many crypto investors hasn’t happened yet. Most regulators opted to simply regulate cryptocurrencies and not ban crypto activities completely. The US Securities and Exchange Commission (SEC) even opted to call Bitcoin and Ethereum as commodities. This was a monumental development in the crypto world considering that both cryptocurrencies are not subject to laws applied to stocks and other financial instruments.
William Hinman who is the director of the SEC’s division of corporation finance mentioned that “Putting aside the fundraising that accompanies the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities and transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value”.
Unfortunately for Ripple, the third largest cryptocurrency based on market capitalization, things aren’t looking so good. For one, it has been dealing with lawsuits. In fact, Ripple reacted by hiring people who could help decentralize the cryptocurrency.
Recently, it seems apparent that Ripple may potentially face a fourth lawsuit. According to Rosen Law Firm, it says that it is already investigating whether Ripple Labs, Inc. violated the federal securities laws. According to Rosen Law Firm, a New York-based company, it “represents investors throughout the globe, concentrating its practice in securities class actions and shareholder derivative litigation”. In addition to this, the law firm mentioned that they are preparing for “a class action lawsuit to recover losses suffered by purchasers of Ripple’s XRP tokens”.
There were already three lawsuits against Ripple. The first was filed on May 3 by Law firm Taylor-Copenfland. By June, additional two other lawsuits came into play. Both were filed by Robbins Arroyo. According to Ripple, the cryptocurrency is completely separate from the private company.
CEO Brad Garlinghouse even gave three reasons why XRP is not a security. One, he mentioned that “If Ripple, the company, shuts down tomorrow, the XRP ledger will continue to operate. It’s open-source, decentralized technology that exists independent of Ripple”.
Not a Security?
Next, he also mentioned that “People who buy XRP don’t think they’re buying shares of Ripple. There’s a company called Ripple. We are a private company. We have investors. People have bought shares of Ripple the company. But buying XRP doesn’t give you ownership of Ripple. It doesn’t give you access to dividends or profits that may come from Ripple”. And lastly, “XRP is solving a problem. There’s no utility in a security”.
In October, at a FinTech Panel in San Francisco, Garlinghouse mentioned that Ripple owns 60% of the total supply of XRP, while the majority of it is locked in escrow. In addition to this, the CEO also called XRP as “our digital asset”.
What’s in store for Ripple at this point? Not only is Ripple affected by the lawsuits, its price also dropped after the SEC decided to postpone its decision whether or not to approve a Bitcoin ETF.