Chris Giancarlo, erstwhile chairman of the United States Commodity Futures Trading Commission, has argued why he thinks XRP cryptocurrency, despite the several lawsuits against Ripple, is not a security.
Chris aired the sentiment in the International Financial Law Review published on cryptocurrencies and the US security lawsuit, emphasizing on “Ripple and the application of US securities laws to XRP.”
The paper titled “Cryptocurrencies and U.S. Securities Laws: Beyond Bitcoin and Ether,” was co-written by prominent commodities lawyer Conrad Bahlke who works at Willkie Farr & Gallagher LLP, a New York-based law firm.
The paper mentioned that XRP is not different from Bitcoin and Ethereum, just that it is backed by distributed ledger. After creating XRP in 2011, Ripple today utilizes the cryptocurrency to help financial institutions tackle remittance problems like liquidity challenges, extended processing time, high transaction cost and archaic settlement mechanism among others, the paper argues.
The paper stated that XRP differs from other cryptocurrencies in the fact that it is not minable. While XRP uses XRP Ledger, there is no reward for validation of transaction and XRP cannot be generated by a third party, else, it has a fixed supply that has been created since inception, the paper explains.
The paper clarified that the distinctions make XRP a better cryptocurrency in serving as a liquidity tool and settlement mechanism and not a different crypto entity from a legal and regulatory viewpoint.
Giancarlo and Bahlke in the paper averred that XRP, under a fair application scheme of Howey test and the SEC’s, should not be considered a security. The cryptocurrency should rather be seen by SEC as a medium of exchange and as a currency, the market experts continued, claiming XRP’s adoption for settlement purpose in recent time is an attestation that the cryptocurrency is a veritable fiat substitute that can help manage the transfer of funds.
Giancarlo and Bahlke made the assertion while reviewing the conditions of the Howey Test to determine if an asset is a security or not, as coined by the SEC in 1946.
According to the definition of “security” as established in the Securities Act of 1933 and the Securities Exchange Act of 1934, the SEC believes that some cryptocurrencies are “investment contracts.” However, based on the definition of investment contract as said by the Supreme Court, in a case between SEC v. W.J. Howey Co. (Howey), XRP does not satisfy all factors projected by the Howey test claiming that a cryptocurrency is an investment contract subject to regulation as a security, Giancarlo and Bahlke said.
Giancarlo, who is also regarded as ‘Crypto Dad’ had earlier presented the benefits of Bitcoin to the Congress in a speech, applauding the cryptocurrency for letting his kids grow interest in finance.
Giancarlo is one of the largest individual owners of XRP cryptocurrency. Though, he’s no longer a regulator, his messages would get to the SEC, and could make an impact in treating XRP as a commodity and not a security.