Why a pro-Ripple attorney believes XRP cannot be considered a security, even if it was sold as one

U.S. Attorney John Deaton has shown why the XRP cryptocurrency cannot be categorized as a security, even though blockchain payments startup Ripple advertised it as an investment contract to the general public.

Ripple and the U.S. Securities and Exchange Commission are at odds about whether XRP should be considered a security, which is at the heart of their legal dispute.

John E. Deaton, a creator of CryptoLaw, argued in a Friday Twitter thread that XRP “remains a digital code” regardless of whether Ripple offered it as an investment contract in the past or is still selling it now.

Deaton emphasized that the mere fact that someone utilized bitcoin (BTC) as a security does not make it a security. In a similar manner, the court found in the LBRY Credits (LBC) case that LBRY offered LBC as an investment contract when it made direct sales. According to the attorney, LBC remains nothing more than a software code. The SEC acknowledged in writing that the secondary market sale of LBC tokens did not constitute a security. This indicates that LBC itself is not a security. If so, the court’s decision would be applicable to all of its sales.

The same applies to XRP from Ripple. Deaton observes, however, that the SEC has already hinted that the XRP coin itself is security. 

Nonetheless, the underlying asset is never the security in an investment contract case, and the unique Howey test necessitates a Howey analysis at the time of each offer to sell. Deaton is thus fairly certain that District Judge Analisa Torres will deny the SEC’s move for summary judgement in the XRP lawsuit.

Bitcoin was also referenced by Deaton while he investigated the XRP security vulnerability. The digital asset was previously “packaged, advertised, presented, and sold” as an investment contract, he writes. In this way, condos, chinchillas, and beavers live. Despite the fact that they may be marketed as investment contracts, they do not become securities.

In December 2020, the SEC filed an action against Ripple, alleging that the company had marketed unregistered securities since 2013. Two years later, the high-profile case that severely tarnished Ripple’s image continues to linger. A decision is anticipated within the first half of 2023, barring an improbable settlement. The majority of XRP supporters feel that Ripple has the upper hand in this dispute and are certain that the business will eventually succeed.

The most probable source of the regulatory clarification that the cryptocurrency sector has long sought will be a ruling in the SEC v. Ripple case.

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