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On the 22nd of December, the Securities and Exchange Commission (SEC), the primary federal regulator responsible for enforcing federal securities laws in the United States, announced that it was filing an action against Ripple Labs Inc., the founders of the Ripple network and its cryptocurrency XRP. Many of you have been closely following the newest developments around Ripple and the SEC. Here are the answers to your most pressing questions.
What is Ripple (XRP)?
The Ripple Network and its cryptocurrency XRP were initially established by Ripple Labs Inc. in 2012 as a global settlement network to enable value transfers in a reliable and cost-effective way. Therefore, unlike Bitcoin, Ripple is not a decentralised peer-to-peer network.
Established by its founders as an ecosystem initiative for investment, XRP quickly evolved into an altcoin of significant standing and popularity, continually ranking among the world’s top five cryptocurrencies in terms of market capitalisation.
What is the SEC (Securities and Exchange Commission)?
The Securities and Exchange Commission (SEC) is the primary federal regulator responsible for enforcing federal securities laws in the United States. Among other tasks the responsibilities of the SEC include regulating the securities industry, including stock and options exchanges.
As the issuance of tokens or coins was not subject to any legislation in the early days of cryptocurrencies, these issuances completely fell out of any regulatory framework or jurisdiction. With the increasing global adoption of tokens and digital currencies, authorities around the world are working on developing regulatory structures with the objective of ensuring that token offerings of any type are in compliance with the law. In the USA, the SEC stipulates how companies are required to disclose their securities offerings as such (Howey Test).
What is the Howey Test?
The Howey Test is a methodology introduced in 1946 to determine whether a venture such as an IPO or an ICO constitutes an investment contract. It defines an asset as a security if "a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party." In simple terms, the Howey Test is used to determine whether putting money into a business or a project means that you have “invested” in it.
What happened to Ripple?
On the 22nd of December, the Securities and Exchange Commission (SEC), the primary federal regulator responsible for enforcing federal securities laws in the United States announced that it was filing an action against Ripple Labs Inc. and its management.
The SEC is alleging that the founders had launched the Ripple Network and XRP as part of an unregistered, ongoing asset securities offering to investors in the United States and worldwide, raising more than USD 1.3 billion. Hence, the complaint implies that Ripple has failed to register their offer as an investment contract for investors.
What does this mean for me as a user of Bitpanda and Bitpanda Pro?
Bitpanda is following the current legal discussion between the SEC and Ripple Labs Inc. closely and has decided to take the following measures:
Bitpanda will keep XRP listed on Bitpanda and Bitpanda Pro for the time being until further notice. This is because we want to avoid harming our users who want to sell their XRP or still buy XRP.
However, in collaboration with our partner MVIS, XRP will be removed from all Bitpanda Crypto Indices (BCI5, BCI10 and the BCI25) as part of the index rebalancing event at the end of December 2020.
XRP is not currently defined as a security according to European legislation and therefore lies within the existing regulatory framework. Bitpanda is diligently monitoring developments around the legal dispute in case new facts emerge. We will keep you posted as the matter progresses.