Good times have been rolling for Ripple and its native currency XRP. Over the last month, the token has gained more than 200% and had briefly overtaken Ethereum as the second largest cryptocurrency in the world by market capitalisation. The reason for this drastic uphill that XRP saw was attributed to the possible release of Ripple’s XRapid solution for cross-border payments.
XRP’s company, Ripple had its annual event Swell in San Fransisco this week and a lot of senior members of the community were in attendance, lending the company a lot of their credibility in the process. The good streak that Ripple has going for itself is extended by remarks made by a former senior official at the United States of America Securities and Exchange Commission.
Diduik’s Opinion
Quoting the Supreme Court’s Howey ruling from back in the 1940s, Micheal Diduik said the following;
“I don’t think XRP is a security, I think XRP is a currency. The reason why is […] Howey test… It’s a 4-factor test – Investment of money in a common enterprise with the expectation of profits based on the efforts of others.”
The statements he made was in response to a question asked to the panel in Ripple’s annual event Swell, which was accordingly redirected to him as he was the only SEC expert on the panel.
The Howey Test
The Howey Test is a test that was created by the Supreme Court to determine whether a transaction qualifies as an “investment” and in the event that it did, the transaction would become a securities and thereby under the jurisdiction of registration, verification, public disclosing, etc.
The test is a four-factor test that tests the asset for the following:
- It is an investment of money?
- Is there an expectation of profits from the investment?
- Is the investment of money in a common enterprise?
- Do any of the profits come from the efforts of a promoter or third party?
If a transaction comes out positive for all the above questions, it becomes a securities.
Implication
In the event that the SEC does classify the XRP Token as a currency and not as a securities means that the SEC will be granting the third largest cryptocurrency of the world the status of a currency. Which is not only a win for the token but the entire cryptocurrency market.
So far, Bitcoin and Ethereum are the only other two cryptocurrencies that have not been labelled as securities and have the status of a currency.
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