The two most valuable altcoins are most likely “noncompliant securities” under US law, claims a former markets regulator.
Gary Gensler, a former head of the Commodity Futures Trading Commission (CFTC), said that he believes Ether and XRP have been issued through unregistered securities offerings and are trading illegally on the hundreds of cryptocurrency exchanges that list them. Gensler chaired the CFTC from 2009 to 2014 during the Obama administration and later served as chief financial officer for Hillary Clinton’s presidential campaign. Now, he works as a blockchain researcher at the Massachusetts Institute of Technology (MIT), where he also serves as a special adviser to the blockchain-friendly Media Lab and a senior lecturer at the Sloan School of Management.
“There is a strong case for both of them — but particularly Ripple — that they are noncompliant securities,” Gensler told the New York Times.
That’s because both cryptocurrencies have been sold by their creators and purchased primarily as investments for speculative reasons. Bitcoin, in contrast, was never issued in this manner and is thus unlikely to be deemed a security by regulators. As CCN reported, Ethereum was bootstrapped in an initial coin offering-style presale in 2014, through which investors purchased Ether units that were distributed once the Ethereum network launched in July 2015. Following that initial distribution, new units of Ether have been distributed through mining, and the Ethereum Foundation now controls less than one percent of the Ether supply. However, top officials at the Securities and Exchange Commission (SEC) reportedly recently refused to assure an industry working group backed by venture capital firms Andreessen Horowitz and Union Square Ventures that Ether is not an unregistered security. Nevertheless, Gensler said that because Ethereum has been functional for nearly three years and has achieved a more decentralized development structure, it has a greater chance of evading the “noncompliant securities” label than XRP and most ICOs. XRP was created by San Francisco-based blockchain startup Ripple, and the company issues tokens at its own discretion through sales, grants, and other centralized means. Ripple has repeatedly claimed that XRP is not a security, though cryptocurrency exchange operator and brokerage firm Coinbase has suggested that it does not believe there is regulatory certainty that prevents it from listing the token.
“XRP does not give its owners an interest or stake in Ripple, and they are not paid dividends,” Ripple spokesman Tom Channick told the NYT. “XRP exists independent of Ripple, was created before the company and will exist after it.”
Gensler, meanwhile, said that he believes 2018 will bring a reckoning for the cryptocurrency industry, as regulators continue to take a more active role in policing ICOs and other token sales that allegedly constitute unregistered securities offerings. “2018 is going to be a very interesting time,” Gensler said. “Over 1,000 previously issued initial coin offerings, and over 100 exchanges that offer ICOs, are going to need to sort out how to come into compliance with U.S. securities law.”
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