The SEC’s argument that utility tokens are not securities is the latest in a long line of legal backpedals by regulators. While it may seem like a victory for cryptocurrencies, this move will ultimately hurt the industry and consumers alike.
The cryptolaw is a cryptocurrency that has no utility. It is not backed by anything and does not have any intrinsic value.
CryptoLaw’s Founder and Host, John E. Deaton
From the start, the SEC’s case against Ripple was faulty. The argument that XRP has no use or that every XRP holder has participated in a “common business” with Ripple is among the suit’s most egregious allegations. These two accusations, when coupled with the SEC’s primary contention in their lawsuit, that Ripple’s offers and sales of XRP constituted unregistered securities transactions, show that the SEC has either failed to grasp or decided not to understand the basics of crypto. The community of XRP holders, however, is paying the price.
“Now, the court mentioned a utility for XRP,” said Jorge G. Tenreiro, Senior SEC Trial Counsel. During a March 19 hearing, the SEC said, “We question whether that utility really exists, your Honor,” which is even weaker than the SEC’s previous claim of Section 5 breaches. However, it became apparent that Magistrate Judge Sarah Netburn was more educated than the SEC had expected, based on her statement that “XRP not only has a kind of monetary value, but it also has a utility, and that usefulness differentiates it, I believe, from Bitcoin and Ether.” Judge Netburn, millions of XRP holders, Ripple, BitPay, Spend the Bits, Japan’s SBI, and others all acknowledge the usefulness of XRP, thus the SEC seems to be the anomaly.
XRP’s open-source nature enables people all around the globe to utilize the token to pay for products and services without having to rely on Ripple. According to Cryptwerk, over 1,300 businesses in sectors ranging from business services to tourism and travel already accept XRP as payment. Over 19,000 XRP holders have contacted me since we filed our Motion to Intervene in the Ripple lawsuit on behalf of XRP holders, many of whom get XRP salaries and use XRP-powered debit cards to buy for groceries and pay for petrol. Despite the SEC’s allegations, these individuals are not in a “common business” with Ripple.
The SEC’s claim that there is no XRP without Ripple is not only incorrect, but also illogical. The SEC’s lawsuit was the first time many XRP holders had heard of Ripple, prompting many of us to wonder, “What is Ripple?”
There hasn’t been a lack of useful information from these ordinary investors, whom the SEC claims to be protecting. For example, in a survey conducted by Stedas Crypto, almost 90% of the 400 respondents said that they did not believe they were purchasing shares or other forms of ownership in Ripple when they purchased XRP.
If that wasn’t enough, simply take a peek at recent bitcoin market activity and patterns. China tightened its grip on crypto mining inside its borders, causing the bitcoin hashrate to plummet by half. Bitcoin’s price has dropped by 43%, pushing down the price of other major currencies, including XRP. This change in the price of XRP could not be objectively attributed to Ripple’s or its executives’ activities. But what is the SEC’s position? It claims that XRP has no use other than to serve as an investment contract with Ripple, and that all holders have engaged into an investment contract whose value is decided by Ripple’s and its two senior executives’ activities. Former SEC Chairman Jay Clayton, who initiated the case against Ripple on his final day in office, has also said that bitcoin is not a security due to its decentralized ledger. Yet, here we have the Chinese government showing its enormous power over the price of bitcoin with a single move, as well as the values of a slew of other major currencies, including XRP, in rapid succession.
In its lawsuit against Ripple and its executives, the SEC has now cited a utility. Your Honor, we disagree on whether or not such utility exists.
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