Is cryptocurrency currency, commodity, or securities? This question has been hot potatoes for quite some time. The U.S. Securities and Exchange Commission (SEC) filed a lawsuit on the 22nd of last month, defining the cryptocurrency Ripple (XRP) issued by the U.S. company Ripple Labs as unregistered securities, and for violating the Securities Act.
According to the complaint, Ripple Labs used $1.38 billion (approximately 1.5 trillion won) of funds earned from selling Ripple without any business disclosure. Based on this, the Securities and Exchange Commission argued that Ripple had to comply with the registration requirements of the Securities Act as it was an investment contract from the beginning. In other words, Ripple is a securities that share the profits of Ripple Labs.
According to the news of the lawsuit, the price of Ripple, the fourth largest cryptocurrency market cap, plunged from 617 won to 250 won. Bitcoin and Ethereum, which are the 1st and 2nd in market cap, exceeded 37 million won and 1 million won, respectively, which is contrary to the record highs. In addition to Coinbase, the largest cryptocurrency exchange in the U.S., Bitstamp, OKCoin, Binance US (US), and Crypto.com have also suspended or delisted Ripple.
Of course, there are objections. Former Commissioner of the Commodity Futures Trading Commission (CFTC) Christopher Jang Kahlo argued that based on the Howey test, it is reasonable to view Ripple as a “means of currency or exchange,” not securities.
The Howi test is a criterion for evaluating whether a product is a security, and it is classified as a security if a reasonable return can be expected by investing money in a company. Former Chairman Jang Kalo’s argument is that Ripple investors are not securities because they have not been paid profits or shared profits from Ripple Labs.
If the Securities and Exchange Commission wins, Ripple is classified as a securities, and can only be traded on a licensed stock exchange, not a cryptocurrency exchange. The cryptocurrency industry predicted that the future of cryptocurrency with the characteristics of securities may be dark in the future according to the results of this ruling.
* This article was also published in the Hankyoreh newspaper. CoinDesk Korea is delivering blockchain news once a month on the Hankyoreh Newspaper’s blockchain special page’Shift+B’.
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