Tokens sold in initial coin offerings have come under increased scrutiny from U.S. regulators, but some of the biggest cryptocurrencies aren’t necessarily off the hook.
Gary Gensler, the former chairman of the Commodity Futures Trading Commission, said that government officials should take a closer look at the largest coins by market capitalization, not just at tokens sold in ICOs. Ethereum’s Ether and Ripple’s XRP could probably be classified as securities, Gensler said.
“The SEC and regulators need to bring clarity,” Gensler said at MIT Technology Review’s Business of Blockchain conference on Monday. Many cryptocurrenciers “are operating outside of U.S. laws.”
(Related: SEC Chief Clayton Issues Warning on Cryptocurrencies, ICOs)
Related: Shining a Light on Bitcoin)
One of the ways regulators determine if an asset is a security is with the so-called Howey Test. For Gensler, buying Ripple’s XRP and Ether meets the requirements of the test as there’s an investment of money in a common enterprise, and the expectation of profit which comes from the efforts of a third party. The common enterprise for Ripple would be Ripple Labs, and for ether it would be the Ethereum Foundation, Gensler said.
“There’s a strong case, particularly for Ripple,” Gensler said, as Ether is more decentralized.
Issuer Perspective
A Ripple representative said in an email, “we don’t believe that XRP should be classified as a security. XRP does not give its owners an interest or stake in Ripple and they are not paid dividends. XRP exists independent of Ripple, was created before the company and will exist after it. Ripple has always promoted XRP as a useful digital asset for enterprise payments because it’s faster, more scalable and more inexpensive than other digital assets. That utility exists completely separate from Ripple.”
Related: Shining a Light on Bitcoin)