The security status of Ripple’s cryptocurrency, XRP, has long been a grey area in the crypto space. The situation has been exacerbated by multiple class-action lawsuits filed against Ripple, alleging the blockchain payments firm sold unregistered XRP as an unregistered security.
The former chairman of Commodity Futures Trading Commission (CFTC), Christopher Giancarlo, has shared his opinion on the matter in an elaborate article for the International Finance Law Review. In the article published on June 17, Giancarlo claims XRP is not a security. However, his opinion has raised eyebrows because he is financially connected to Ripple.
XRP Fails Howey Test And Is Therefore Not A Security: Giancarlo
Giancarlo served as the thirteenth CFTC chairman for a term that expired in April last year. While at the commission, he was responsible for the decision that led to the classification of both bitcoin and ethereum as commodities.
Under the Howey Test, an asset is considered a security if it involves a contractual agreement in a common enterprise and the buyer expects profits in the future from the efforts of a third party or promoter.
According to the former CFTC boss, XRP does not satisfy any of these requirements and can therefore not be considered a security. To quote Giancarlo directly:
“The mere fact that an individual holds XRP does not create any relationship, rights or privileges with respect to Ripple. Ripple has not marketed XRP as an investment product, nor has it promised XRP holders any sort of profit or return on investment.”
He further asserts that “even if XRP were to satisfy one or two prongs of the Howey test, it does not satisfy all the factors such that XRP is an investment contract subject to regulation as a security.”
Giancarlo then points out that the Securities and Commodities Exchange (SEC) has already given its guidance regarding the security status of other cryptocurrencies but has not commented on the fourth-largest cryptocurrency by market cap, XRP. Notably, the SEC has already cleared bitcoin and ethereum of securities classification but has remained mum on Ripple’s native cryptocurrency.
Regardless, Giancarlo goes on to debunk the persistent concerns about Ripple’s XRP holdings and the distribution of the cryptocurrency. He also argues that just because XRP is not mined like bitcoin and ethereum, it does not change how it is utilized as it has a clear utility as a payment and settlement mechanism.
But Does Giancarlo’s Opinion Really Matter?
What has caught the eye of the crypto community most about Giancarlo’s arguments is his relationship with Ripple. Notably, he now works as senior counsel at Willkie Farr & Gallagher, a law firm that Ripple hires. He, however, claims to have “relied on factual information” supplied by Ripple in preparing the report.
Moreover, he is no longer an official at CFTC, and as such, he cannot make the decision on XRP’s security status. The pending court cases and the SEC are the only ones in a position to clear the air around the digital asset, as some crypto analysts have observed.
There are only two opinions about XRP’s security status that matter: those of the courts & the SEC. Everything else at this point is noise.
— Jake Chervinsky (@jchervinsky) June 17, 2020
As Ripple has stated before, the classification of XRP as a security could have dreadful consequences on the XRP market as well as Ripple the company. It can, therefore, be assumed that Giancarlo’s report is supposed to make a strong case for XRP before the SEC which has the final say in this matter. However, his relation to Ripple raises some serious questions.
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