Following the Securities and Exchange Commission’s (SEC) lawsuit against Ripple Labs, there have been speculations that Ethereum might be next in line to be branded as a security.
Ripple’s motion to compel the SEC to produce internal documents relating to Bitcoin, Ethereum, and its XRP have fueled these speculations.
The payment giant Ripple wants the SEC to reveal said documents to expose how the regulators came about classifying Bitcoin and Ethereum as currencies and why it alleges that XRP is a security. “The documents Defendants seek in this request are relevant because they show how the SEC itself has categorized and classified XRP and other digital assets, including Bitcoin and Ether, pursuant to its own policies” the motion is quoted saying, while also stating that the SEC is unclear on how its policies draw a distinction between securities and currencies especially as concerning cryptocurrencies.
The SEC and Ripple are disputing two main points: whether XRP is in fact a security and if the SEC provided Ripple with proper fair notice that selling XRP would be deemed a securities offering.
Though nothing has been decided as it seems the SEC is delaying the conclusion of the lawsuit, the presiding inspector has previously clarified why he brands XRP a security but not Ether. In his words: “My understanding about XRP is that not only does it have a currency value, but it has a utility and that utility distinguishes it from Bitcoin and Ether.”
Ripple operates a network that allows cross-border payments using its native cryptocurrency XRP to facilitate currency transfers over the XRP network. Note that Ripple’s XRP differs from Bitcoin or Ether, two cryptocurrencies acknowledged by the SEC to be non-securities, in that Bitcoin and Ether are minted through the mining process which is ongoing, whereas XRP’s supply was capped at 100 billion XRP at once when it was created in 2012, of which a substantial amount is held by Ripple. The SEC claims XRP is a security, and not a currency for this reason.
The outcome of this lawsuit will have strong ramifications for other tokens and create a precedent that other networks will follow without triggering regulatory laws.
Ether, the native currency of Ethereum which can be argued to have a utility function too, may see itself branded a security by the SEC. “This is about more than just Ripple. This is about more than just XRP. It really does have implications for all of crypto here in the United States” Garlinghouse said.
Meanwhile, the price of XRP crashed 51% to $0.25 following the news of the lawsuit in December 2020 but is currently up by a considerable edge, trading at $0.82.
The company has threatened to relocate to other jurisdictions if its operations are hampered in the U.S.