Summary
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SEC Considers Reclassifying XRP as a Commodity: In ongoing settlement discussions with Ripple, the SEC is reportedly evaluating reclassifying XRP as a commodity, potentially mirroring its stance on Ethereum.
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Ethereum as a Benchmark for XRP’s Regulatory Status: The SEC’s classification of Ethereum as a “pure commodity” is serving as a key comparison point in considering a similar status for XRP, particularly as both were initially intended to fund blockchain development.
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Reclassification Could Clear Path for XRP ETFs: If the SEC reclassifies XRP as a commodity, it would not only impact the ongoing lawsuit with Ripple but also significantly increase the likelihood of approvals for spot XRP ETFs, which are currently hindered by regulatory uncertainty.
Securities regulators are reportedly considering a significant shift in the classification of XRP. During settlement negotiations with Ripple, the Securities and Exchange Commission (SEC) is evaluating the possibility of categorizing XRP as a commodity.
This consideration has emerged with Ethereum acting as a point of reference; despite its initial funding through an Initial Coin Offering (ICO), the SEC currently regards Ether (ETH) as trading as a “pure commodity.”
Sources indicate that the regulatory treatment of Ethereum has become a pivotal comparison. The cases of both XRP and ETH are being weighed against each other because both cryptocurrencies were initially created to fund the development of blockchain networks.
It’s important to note that Ripple has previously asserted that XRP’s creation differed fundamentally from an ICO. David Schwartz, Ripple’s CTO, among other company representatives, has maintained that XRP was pre-mined and distributed via mechanisms that diverge from typical ICO distribution models.
This distinctive distribution method by Ripple has been a central issue. Unlike more decentralized cryptocurrency launches, Ripple’s approach has been subject to intense scrutiny from regulatory bodies like the SEC, which argues that Ripple engaged in the sale of unregistered securities.
Currently, neither Ripple nor the SEC has issued public statements concerning these recent developments in their settlement talks.
XRP’s Partial Non-Security Ruling
A notable legal decision in July 2023 saw US District Judge Analisa Torres ruling that XRP, in and of itself, does not meet the definition of a security, particularly when traded on secondary cryptocurrency exchanges.
However, Judge Torres did rule against Ripple concerning their direct XRP sales to institutional investors, classifying these as unregistered securities offerings.
The determination of whether a digital asset qualifies as a security is currently evaluated using the Howey Test, which establishes criteria for what constitutes an investment contract.
The 2023 ruling clarified that XRP transactions on exchanges were not considered securities offerings because purchasers lacked a direct relationship with Ripple and were generally unaware of Ripple’s role in the transactions.
Furthermore, distributions of XRP as compensation or for services rendered were also deemed outside the scope of securities transactions.
SEC vs. Ripple Lawsuit Approaching Resolution
Ripple’s legal team is reportedly engaged in discussions to adjust certain aspects of the prior ruling. These adjustments pertain to the $125 million penalty imposed on Ripple and the limitations placed on their ability to sell XRP to institutional buyers.
According to Terrett, current settlement discussions are focused on adapting the existing terms to align with updated SEC policies implemented under its current leadership.
Regulatory Certainty and Crypto ETF Approvals
In an interview with Blockworks in January, Bloomberg ETF analyst James Seyffart highlighted the challenges faced by proposed Solana ETFs.
He pointed to the SEC’s classification of Solana as a potential security and ongoing legal challenges as major factors complicating the approval of a commodities-based ETF for Solana.
Seyffart explained that the SEC typically prefers clear regulatory landscapes and resolutions to legal disputes before deciding on financial products related to assets whose regulatory status is uncertain.
Although Seyffart did not specifically mention XRP, the situation is analogous. Regulatory clarity is paramount for ETF approvals.
Also Read: SEC ETF Delays Cause Investor Panic as Bitcoin Reaches $82K
*Disclaimer*: We at Bitcoinleef.com present you with the latest information in the crypto market. However, this information should not be regarded as financial advice and viewers should consult their financial advisors before investing.
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