In recent news, a top US lawyer has identified the number one reason why XRP, the cryptocurrency used by Ripple, should not be considered a security. This insight was shared by Jeremy Hogan, a legal expert in the field of cryptocurrency and blockchain, on his Twitter account.
The #1 reason why XRP is not a Security (a thread).
First, under the legislative definition of a security, XRP can only POSSIBLY fit under the definition of an "investment contract." It is not a stock or bond, etc..
Even the SEC concedes this: "investment contract." pic.twitter.com/n9g7ZEos2n
— Jeremy Hogan (@attorneyjeremy1) April 9, 2023
Per Hogan, the analysis of what qualifies as an investment contract is usually governed by the Howey case and its “progeny.” He added that the famous Howey Test, “an investment in a common enterprise with expectations of profit from the efforts of others,” responded to a lower court’s opinion that a speculative case was necessary.
In the Joiner case the Court had just discussed the existence of a contract and had decided that there was an enforceable "implied" agreement or perhaps an explicit legal agreement but, either way, there WAS a contract between the offeror and purchaser – an "investment CONTRACT." pic.twitter.com/OJTHptutmY
— Jeremy Hogan (@attorneyjeremy1) April 9, 2023
Jeremy Hogan Highlights Reasons Ripple’s XRP Is Not A Security
According to the lawyer, an investment contract is “an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” However, XRP does not fit this definition because it is not a joint enterprise and its value is not derived from the efforts of Ripple or any other entity.
Instead, the value of XRP is determined by market forces and its utility as a digital asset. This means that XRP is more like a commodity or currency than a security.
However, the pro-XRP attorney noted that the SEC has failed to provide substantial facts showing a contract of investment in the Ripple case. He noted that the SEC claims the purchase agreement between investors and Ripple is everything required to prove an investment contract.
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“That argument tears the investment from the contract […] A simple purchase, without more, cannot be an ‘investment contract.’ it is just an investment (like buying an ounce of gold) as there is no obligation for Ripple to do anything except transfer the asset,” said Hogan.
This is not the first time that the status of XRP has been debated in the legal community. The Securities and Exchange Commission (SEC) has filed a lawsuit against Ripple, alleging that the company illegally sold XRP as an unregistered security. Ripple has denied the allegations and is fighting the lawsuit in court.
If XRP is ultimately classified as a security, it could have significant implications for the cryptocurrency industry as a whole. It could lead to increased regulation and oversight of cryptocurrencies, impacting their use and adoption.