WHERE IS THE PROBLEM? Classify two of the top three coins by market cap, ethereum and Ripple's XRP, as securities

[Professor Hantzen]

30 minutes ago, Quintree said:

The question comes to mind then why Ripple is insisting XRP is not a security. If it's a net positive, seems they wouldn't be taking that position. 

As I mentioned, loyalty to early exchanges who are in huge part responsible for the fact Ripple is sitting on billions of dollars worth of asset. Also, to me at least, classifying XRP and ETH as securities its just absolutely, stupidly wrong.  There is nothing to be lost by defining a new asset class for cryptocurrencies/digital assets, and much to be gained, so why not do that?

Also, I'm not suggesting its a net positive.  Short-term its a potential pricing nightmare.  I'm *not* meaning to suggest classifying crypto as a security is better (or even a good idea).  Creating a new asset class and regulating that is far better in any juristiction.  What I am suggesting, in support of the spirit of the original post, is that long-term I doubt that whether middle-man A or middle-man B facilitates the exchanges between fiat and crypto within 20% of the market will have much impact on the price, except that in case of the dinosaur exchanges, they already have huge brand recognition and don't have to build it first, so growth would probably happen faster in that market.

[GiddyUp]

21 minutes ago, DutchPanda said:

I sure hope not, if XRP were to be deemed to be a security, one would have to be an accredited investor; income of $200,000 or assets of $1,000,000, excluding your house...

That would not apply for US citizens who already own XRP, or am I missing something?

I don't know how that would work, @Sporticus can you shed some light on this? Will current holders be grandfathered in?

[Sporticus]

1 hour ago, GiddyUp said:

I don't know how that would work, @Sporticus can you shed some light on this? Will current holders be grandfathered in?

With Regulation D private placement, non-registered securities, there is the requirement of the purchaser of the security to be a qualified investor, which means you need to be a millionaire.  However XRP is not the kind of asset that would lend itself to being a Reg D offering.  I think there will ultimately need to be a special case for the placement of these digital assets on exchanges. Ripple is right, XRP is not a security, but that does not mean that the US Government will defer to Ripple's position.   Ripple can fight the government in court and we can file class actions against the US as XRP holders.  Yes, we do have vested rights to our XRP protected by the US Constitution.  The Due Process Clause, the Fifth Amendment protects our property rights, just like the First Amendment protects our right to free speech and the Second Amendment protects the right to own guns.  

The United States SEC and the DOJ are likely to move slowly because if they do not, they will be beaten up in court and in the Congress by the crypto community.  There are more and more individuals and institutions buying in every day. Faced with such a formidable foe in the public, we are likely to see favorable compromises from United States' agencies. .  Lawyers hate losing and prosecutors and assistant Attorney General lawyers like to make deals to avoid being beaten or made to work too hard.  Regulation will clear matters and then Coinbase, NASDAQ and the rest of the exchanges can list XRP and the institutional purchasers will come in and all that will help with the volume and liquidity which will enable the cross border payment corridors to function efficiently.  This is when we will see the organic rise of XRP prices and the whales will have less influence on price like they are doing right now.

[JC83]

Xrp could be classified as a derivative. Meaning a contract that derives its value from the performance of an underlying entity(https://en.wikipedia.org/wiki/Derivative_(finance)  I think that's the notion most are going for. The problem with that is there is no contract. No one here has signed a private agreement with Ripple to buy XRP off an exchange. Unless the SEC wants to classify the Terms of Use Agreement of said exchanges as a contract I don't see it happening.  Ripple also does not sell XRP to exchanges in hopes the price will rise which is why they do not discuss price. Their focus is liquidity for the asset so it can be used for its purpose as a bridge asset, not an investment asset. That message has always been clear. But like any crypto it falls under the investment by speculation rule which again puts it full circle under derivative. It's a complicated matter and I'm no financial lawyer but that's my take. https://www.investopedia.com/terms/d/derivative.asp

[Blockchained]

What am I missing here ? If XRP becomes classified as a security then every XRP becomes a share , right ?

And the value of the share would be equal to the value of XRP , right ?

[JC83]

1 hour ago, Blockchained said:

What am I missing here ? If XRP becomes classified as a security then every XRP becomes a share , right ?

And the value of the share would be equal to the value of XRP , right ?

If that happens you would need to become an accredited investor. To do that you need assets worth over 1 million that's not real estate and a yearly income of $200000

[dvdman]

So what happens if we hold XRP already? 

[GiddyUp]

3 hours ago, dvdman said:

So what happens if we hold XRP already? 

This is the question that Sporticus answered above...

21 hours ago, Sporticus said:

23 hours ago, GiddyUp said:

I don't know how that would work, @Sporticus can you shed some light on this? Will current holders be grandfathered in?

With Regulation D private placement, non-registered securities, there is the requirement of the purchaser of the security to be a qualified investor, which means you need to be a millionaire.  However XRP is not the kind of asset that would lend itself to being a Reg D offering.  I think there will ultimately need to be a special case for the placement of these digital assets on exchanges. Ripple is right, XRP is not a security, but that does not mean that the US Government will defer to Ripple's position.   Ripple can fight the government in court and we can file class actions against the US as XRP holders.  Yes, we do have vested rights to our XRP protected by the US Constitution.  The Due Process Clause, the Fifth Amendment protects our property rights, just like the First Amendment protects our right to free speech and the Second Amendment protects the right to own guns.  

The United States SEC and the DOJ are likely to move slowly because if they do not, they will be beaten up in court and in the Congress by the crypto community.  There are more and more individuals and institutions buying in every day. Faced with such a formidable foe in the public, we are likely to see favorable compromises from United States' agencies. .  Lawyers hate losing and prosecutors and assistant Attorney General lawyers like to make deals to avoid being beaten or made to work too hard.  Regulation will clear matters and then Coinbase, NASDAQ and the rest of the exchanges can list XRP and the institutional purchasers will come in and all that will help with the volume and liquidity which will enable the cross border payment corridors to function efficiently.  This is when we will see the organic rise of XRP prices and the whales will have less influence on price like they are doing right now.

 

[GiddyUp]

Also @Sporticus  - I posted this in what appears to be a dead thread, can you address this at all? Ripple already has a security...

 

[Sporticus]

1 hour ago, GiddyUp said:

Also @Sporticus  - I posted this in what appears to be a dead thread, can you address this at all? Ripple already has a security...

 

I can understand why you would think that because Ripple is a privately-held corporation which does not sell on a stock exchange, accordingly that corporate and securities structure would allow Ripple to protect XRP from being characterized as a security. Your argument suggests that Ripple should be able to determine and define for itself what kind of securities it issues.  Unfortunately, the test for what is a security is more an objective test and Ripple’s intent is not as important as what the SEC might determine about XRP status as a security. 

Many times different classes of stockholder interests are issued by a corporation, some are called preferred shares, other shares do not have voting rights, in fact, one can contract as to a share’s characteristics concerning about anything imaginable as long as it is not unlawful. So, the fact that Ripple already has issued shares is not dispositive of whether XRP is a share.  

The SEC and the DOJ are very creative in the areas of what is a security and what is money laundering. Because there are so many who structure entities to fall outside the definitions, there has developed the agency response to apply fluid and broad definitions.  The ICO is an obvious security. I mean nobody is fooled by changing the term initial public offering to initial coin offering. In my view, the problem lies with the Eth platform being used for securities offerings, and the Ripple-XRP relation is not that of a security. You do not use XRP to buy a part of the Ripple company. However, people do use Eth to buy interests in the entities which are behind the ICOs. Ripple and should not be lumped in with Ethereum and ICO’s.  Eth value is directly related to the promotion of these ICOs and we all witnessed the Eth value skyrocket as the ICOs proliferated.  The ICOs are rip offs in many instances and are securities which should be regulated. 

Unfortunately, the ICO’s and the crypto intermediary like Coinbase, which launched BCH in dubious circumstances involving alleged insider trading,  have caught the attention of the regulators. Their tendency is to cast a broad net, particularly because those who are actually or likely guilty of securities violations just referenced, will naturally tend to shift blame and deflect on Ripple and XRP. 

Part of the problem is the mis-labeling and conjoining Ripple/XRP.  Many of the unsophisticated  do not recognize the two as separate assets. It does not help that XRP was in an earlier iteration referred to officially as “ripples”.  

I apologize if I have been rambling. At an earlier time, I suspected XRP was closer to Ripple and might be a security.  During the period from June to December of last year there were accusations that Ripple manipulated XRP.  I took to Twitter and other social media was trolling pretty heavily to get a response on XRP and Ripple’s connection. I ****** some people off and even was censured by mods.    It was Joel Katz himself and my research which convinced me that Ripple is an ethical company  

I think I have prevailed on my wife to write a law review article on the topic of XRP and the Securities Exchange Act of 1933. She is an acclaimed legal scholar and has testified before the US House Judiciary Committee on proposed changes to the federal law. As she develops the research, we will make it available to our XRP community. 

In the final analysis I am comfortable with owning XRP and I have great confidence that Ripple is the best advocate and we should get behind those guys. 

I hope this helps. 

[GiddyUp]

Yes, that helps a lot! Thanks for the extensive explanation and thorough, thoughtful response. I would be very keen on reading your wife's article, and definitely wish her the best in her research and hopefully, testimony.

10 hours ago, Sporticus said:

In the final analysis I am comfortable with owning XRP and I have great confidence that Ripple is the best advocate and we should get behind those guys. 

I also agree completely with your sentiments and judgement, and am a solid holder of XRP until we finally see what develops, given time. I think they have a great team and strategy!

[corak]

On 4/26/2018 at 2:38 AM, JC83 said:

Xrp could be classified as a derivative. Meaning a contract that derives its value from the performance of an underlying entity(https://en.wikipedia.org/wiki/Derivative_(finance)  I think that's the notion most are going for. The problem with that is there is no contract. No one here has signed a private agreement with Ripple to buy XRP off an exchange. Unless the SEC wants to classify the Terms of Use Agreement of said exchanges as a contract I don't see it happening.  Ripple also does not sell XRP to exchanges in hopes the price will rise which is why they do not discuss price. Their focus is liquidity for the asset so it can be used for its purpose as a bridge asset, not an investment asset. That message has always been clear. But like any crypto it falls under the investment by speculation rule which again puts it full circle under derivative. It's a complicated matter and I'm no financial lawyer but that's my take. https://www.investopedia.com/terms/d/derivative.asp

What's the underlying entity in this case? There is no "underlying" asset for native tokens, that's kind of the point!

[JC83]

7 hours ago, corak said:

What's the underlying entity in this case? There is no "underlying" asset for native tokens, that's kind of the point!

Ripple would be the company and xrp would be the underlying asset

[corak]

9 hours ago, JC83 said:

Ripple would be the company and xrp would be the underlying asset

A company is not a type of 'traded' asset. Equities are, but XRP is not a derivative of Ripple's equities, something like an option contract is. 

Again, a derivative is a financial instrument that derives its value solely from the performance of another financial instrument, XRP just doesn't

Edited April 28, 2018 by corak

[Guest]

9 hours ago, JC83 said:

Ripple would be the company and xrp would be the underlying asset

If Ripple the company ceases to exist, your XRP private key will continue to exist, and you will still be able to use it to move your XRPs to different addresses on the XRP ledger. The existence of the XRP ledger does not require the existence of a company called “Ripple ”.

There are already full nodes in existence that are owned by non-Ripple entities, and you too can be one of them if you own a suitable computer. As long as someone somewhere is running a validator, you can still move your XRPs, and the recipients can provide goods, services or assets in return. XRP is no more an underlying asset of Ripple than is your wedding ring an underlying asset of some central bank.