Jeremy Hogan, one of the lawyers of the American law firm Hogan & Hogan, and another well-known and respected lawyer, John Deaton, who closely followed the Ripple case, explain why Ripple is not a security. Ripple CTO David Schwartz talks about a correlation that could lead to a bullish trend for XRP.
Why is the SEC’s securities claim on Ripple ridiculous?
Jeremy Hogan, an attorney at the American law firm Hogan & Hogan, who closely monitors and comments on the U.S. Securities and Exchange Commission’s (SEC) ongoing lawsuit against Ripple, explained why XRP should not be considered a security. Hogan says in a series of tweets that XRP can only be called a security under an “investment contract.” He states that the SEC also uses this word in its arguments.
The “Howey” case and the cases that follow it organize the “investment contract analysis”. The Howey test assesses whether an investment is made in a joint venture that expects profits from the efforts of others. Hogan goes on to say that the SEC failed to show that there was an implied or explicit investment contract in the Ripple case. Instead, he claims they only focus on the purchase agreement. However, Hogan argues that a simple purchase cannot be considered an “investment contract” because Ripple has no obligation to do anything other than transmit the asset.
Hogan underlines that all the examples of “blue sky” on which the Howey case relies to define the “investment contract” involve some form of investment contract. It questions how a person can “reasonably trust” the bidder to make a profit, even though the bidder has no legal obligation to deliver.
Jeremy Hogan notes that the question is not whether Ripple is using the money from XRP sales to finance its business, but whether the SEC can prove an implied or explicit “contract” between Ripple and XRP customers regarding their “investment.” According to Hogan, there is no such contract.
Ripple is therefore not a security!
John Deaton, another well-known and respected lawyer who has watched and commented on the SEC’s lawsuit against Ripple, considers why XRP and ETH should not be considered securities. Deaton outlines the main ideas of securities and how they apply to digital assets. Deaton begins by discussing the often misinterpreted legal term “investment contract” and the misuse of the Howey Test on social media. It refers to the Securities Act of 1933, which defines “securities” but does not specifically mention digital assets or software code. Deaton claims that the key word in SEC lawsuits involving digital assets like Telegram, Kik, LBRY, and Ripple is “investment contract.”
According to Deaton, a digital asset or cryptocurrency (software code) is not a security in itself according to the Howey Test. However, it recognizes that a security may be marketed, offered or sold as an investment contract. Deaton emphasizes that although the ETH ICO is unregistered, GRAM tokens, XRP and ETH are not securities. Ripple may have marketed or sold XRP as an unregistered security from time to time.
He underlines that the underlying asset (the digital code) is not a security, and there has been no case in US history where the secondary sale of that asset was determined to be a security. Deaton claims that neither ETH nor XRP are securities, regardless of whether the ETH ICO constitutes a security sale or whether Ripple sold XRP as a security between 2013 and 2018. He states that every altcoin, whether through ICO or not, can be considered a security when first issued. Finally, Deaton advises the industry not to allow the SEC and Bitcoin supporters to take an unconstitutional shortcut by classifying tokens as securities.
This correlation could lead to a bullish bias for XRP
cryptocoin.comAs you follow, Ripple CTO David Schwartz recently discussed the inverse relationship between XRP units and price, noting that the reduction in the total number of units will likely result in a higher price per unit. According to a discussion by Schwartz, the negative correlation between the number of XRP units in existence and its price is too large, which could influence a later uptrend.
Accordingly, if there were only 50 billion XRP units instead of 100 billion, the price would probably be twice as high. This is based on the law of supply and demand, which drives prices up, emphasizing FOMO’s widespread fear of scarcity among investors. However, he points out that the price will be twice as high for those concerned. Schwartz also explains that reducing the total number of XRP units to extremes like 20 million can make it harder for people to understand the numbers.
He even states that comparing the understandability of XRP and Bitcoin (BTC) prices, it is easy for people to grasp the size of 19 XRP compared to 0.00034 BTC. The CEO also highlights the potential for making costly mistakes when entering BTC amounts due to their decimal nature. In contrast, XRP’s larger unit count makes it less prone to such errors.
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