The US Securities and Exchange Commission (SEC) is reportedly evaluating whether XRP should be categorized as a commodity instead of a security during its ongoing settlement discussions with Ripple.
According to journalist Charles Gasparino, the SEC is analyzing the similarities between XRP and Ethereum (ETH). It seems the current SEC leadership regards Ethereum as a commodity, despite its initial launch via an initial coin offering (ICO).
Gasparino noted:
“ETH was clearly issued through an ICO; its characteristics at launch were similar to XRP — both were utilized to fund platform development, yet Ripple faced a lawsuit while Ethereum did not due to ETH’s evolution into a commodity. The focus now is on comparing the two cryptocurrencies.”
The SEC’s analysis of XRP’s functional use and market role could significantly impact the resolution of its case against Ripple, possibly leading to a settlement.
The SEC filed its lawsuit against Ripple in December 2020, claiming that the company conducted an unregistered securities offering through its sale of XRP.
However, in August 2023, US District Judge Analisa Torres made a critical ruling that distinguished between Ripple’s institutional and retail sales. The court concluded that while institutional sales of XRP constituted investment contracts and violated securities laws, secondary market sales to retail investors did not meet the criteria for unregistered securities offerings.
Consequently, the ruling imposed a $125 million penalty on Ripple and established a permanent injunction against institutional sales of XRP.
Possible settlement
Recent reports indicate that the case is nearing resolution, with negotiations centered on achieving terms that reflect the changing regulatory landscape for cryptocurrencies.
Ripple’s legal team is reportedly advocating for lower penalties, asserting that an implicit admission of guilt contradicts the SEC’s shifting approach to crypto regulation.
The firm argues that if the SEC is reevaluating the regulatory status of digital assets, then the terms of their settlement should correspond with this evolving framework.
Attorney James Murphy, known as MetaLawMan, suggested that the SEC might have swiftly accepted a settlement to drop appeals and collect the $125 million penalty.
However, this outcome might not benefit Ripple, especially if the company plans to pursue a future exempt securities offering or go public.
The SEC’s considerations regarding XRP’s classification highlight broader ambiguities in cryptocurrency regulation. Should the agency classify XRP as a commodity, it could establish a precedent for other cryptocurrencies under regulatory examination, like Solana (SOL) and Cardano (ADA).
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