Christopher Giancarlo, the former chairman of the Commodity Futures Trading Commission, caused a sensation last week when he co-authored an article in the International Financial Law Review arguing that XRP cryptocurrency does not qualify as a stock, and therefore “shouldn’t be. regulated as a security, but instead considered a currency or medium of exchange. “
If federal regulators agreed, this would be a big win for owners of XRP, the # 1 cryptocurrency. 3 by market capitalization. Over the past two years, federal officials from the SEC and CFTC have declared that bitcoin (the original and largest cryptocurrency) and ether (the token of the Ethereum network) are not stocks. This keeps them out of the jurisdiction of the SEC, which has severely cracked down on other cryptocurrencies formed through Initial Coin Offerings (ICOs).
But Giancarlo’s conclusion comes with a grain of salt.
Not only is Giancarlo no longer a regulator, and therefore “does not speak in an official capacity,” as he admitted on Yahoo Finance Live last week, but he is now an attorney at Washington, DC firm Willkie Farr & Gallagher, of which joined six months ago. Ripple Labs, the fintech company that developed and uses XRP in its software product for banks, is a client of the company. A footnote to the statutory audit document reveals: “Willkie is Ripple’s legal advisor on certain matters and has relied on certain factual information provided by Ripple in preparing this article.”
The statutory audit document, Giancarlo tells Yahoo Finance, is “a legal piece, it’s not a defense piece, it’s not a piece of politics. It’s a straightforward legal analysis. “
Some might argue that a legal document with conclusions for the benefit of a company, written by lawyers for a company representing the company, based on the facts provided by the company, certainly looks like a piece of defense.
The logic that SEC and CFTC officials used to classify whether a digital currency behaves like a stock comes from the “Howey Test,” a 1946 case involving the sale of shares in a Florida citrus grove.
According to Howey’s test, digital tokens, such as citrus grove stocks, are similar to stocks when invested by a third party with the expectation of profit and marketed and promoted as a profitable investment. Using the Howey test, officials made it clear that they see most tokens created via ICOs as stocks, but not bitcoin or ether.
SEC director of corporate finance William Hinman cited the Howey test when he said at Yahoo Finance: Crypto’s All Markets Summit in June 2018 that newly created tokens in ICOs are stocks because they are marketed with “the promise that assets will be grown in a way that will make them grow in value, to be sold later at a profit “and” they are typically sold to a broad audience rather than people who are likely to use them on the net.
Hinman sees bitcoin and ether, on the other hand, as sufficiently decentralized and not controlled by a “central third party whose efforts are a key determinant in the enterprise.”
Here lies the potential problem for Ripple Labs: the company developed XRP (originally called “ripples”) and owns nearly 50% of all existing XRP tokens. It doesn’t feel very decentralized.
Ripple CEO Brad Garlinghouse, who is very keen for the SEC to clear XRP as not a security, explains it this way: “If Ripple the company closes tomorrow, the XRP registry would continue to work. It’s an open source and decentralized technology. which exists independently of Ripple … I don’t think our ownership of XRP gives us control … just because we have a lot of assets. “
Giancarlo, in his new article, echoes this argument: “Both the network (XRP Ledger) and the platform [Ripple’s liquidity product for banks that uses XRP] they are currently fully functional and developed in such a way that Ripple does not need to use the XRP sale for further development “and,” (XRP) tokens are immediately usable upon acquisition.
Of course, just because Giancarlo’s analysis benefits Ripple, his client, doesn’t mean it’s wrong. But what matters is what the SEC says, and it still hasn’t said what it thinks of XRP.
–
Daniel Roberts is an editor at Yahoo Finance and is closely involved with bitcoin and blockchain. Follow him on Twitter at @readDanwrite.
Read more:
Ripple CEO: 3 reasons why XRP is not a security
What the third bitcoin halving means for crypto investors
Fed Chairman Jay Powell has spoken out on Chinese cryptocurrency plans, a response from the United States
Facebook-led Libra Association lost 8 ‘founding members’
Cryptocurrency CEO who paid $ 4.6 million for lunch with Buffett: “That may not be realistic”
Exclusive: SEC quietly expands its crackdown on ICOs
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, Youtube, is reddit.
[ad_2]Source link
