Both Bitcoin (BTC) and Ethereum (ETH) have been given the all clear by the SEC who indicated that they are not securities, but the question ‘Is Ripple a Currency or Commodity?’ has yet to be answered.
The news over BTC and ETH comes as a huge relief after years of uncertainty in the realm of cryptocurrency regulation. But no mention was made of Ripple (XRP), the third largest cryptocurrency by market capitalization.
Currently, Ripple is fighting two class action lawsuits on the basis that Ripple is a security controlled by the Ripple Corporation. However, in 2015 Ripple settled with FinCEN, paying a $700,000 fine for selling a virtual currency. Ripple was classified as an unregistered money services business (MSB) with FinCEN, thus violating the Bank Secrecy Act and failing to implement an appropriate KYC program. Ripple has already paid a fine to FinCEN on the basis that the XRP token is a currency. It has also adjusted its policies to conform to FinCEN after the agreement.
In the USA regulatory sphere, FinCEN is the department responsible for currency, the SEC for securities, the CFTC for commodities, and the IRS for property. Each of these agencies has classified cryptocurrencies as a currency, a security, a commodity, and a property, respectively, which has created a regulatory quagmire as to what cryptocurrency actually is and who regulates it. This is one of the reasons why the SEC clearance of BTC and ETH is so important to the cryptocurrency community.
Ripple has some attributes that set it apart from BTC and ETH. It is 100% pre-mined, and the majority of tokens are not distributed but are owned by the Ripple Corporation. Its governance model is similar to that of a company as opposed to a truly decentralized organization, but given the recent clearance of BTC and ETH, it is very unlikely that the SEC will claim it as a security to be regulated. The SEC exists primarily to protect investors from scams and frauds, which the ICO market is full of. While no formal declaration has been made, it is unlikely at this time that the SEC will regulate Ripple, and it is odds-on to join ETH and BTC as a non-security.
Is Ripple a Currency or a Commodity?
A more interesting question is whether it will be viewed as a commodity or a currency. Despite the regulatory ambiguity in recent years, cryptocurrencies are largely viewed as commodities by default, as US Federal courts have identified them as commodities to be regulated by the CFTC. However, Ripple’s agreement with FinCEN may mean it will soon become the first cryptocurrency to be formally regulated as a currency and governed by FinCEN. Due to its corporate structure and its operations in the financial market, it was able to be classified as a money services business. It may be the only cryptocurrency to be recognized as a currency for regulatory purposes, primarily due to its governance model.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.