Bitcoin (BTC) and Ripple (XRP) are challenging securities classifications, with a legal expert arguing that the underlying assets are distinct from investment contracts. This has intensified calls for regulatory clarity in the cryptocurrency markets.
BTC and XRP Leading the Legal Shift in Crypto Investment Contract Standards
John E. Deaton, a prominent figure in the cryptocurrency community and a specialized attorney in cryptocurrency law, has strongly criticized the grouping of crypto assets with securities in investment contract cases. In a recent statement on the social media platform X, he addressed the Financial Industry Regulatory Authority (FINRA)’s newly released guide on classifying crypto assets as securities, stating:
The underlying asset used in an ‘investment contract’ is never itself the security.
Deaton, known for representing XRP holders in the SEC’s lawsuit against Ripple Labs and advocating for clearer crypto regulations, has been vocal in his stance. He highlighted various examples to demonstrate that assets involved in investment contracts are not inherently securities. For instance, he pointed out that assets like orange groves, beavers, gold, and condominiums have all been marketed within investment contracts but are separate physical or tangible items. “Gold may have been sold as part of an investment contract (security), but at its core, it remains gold that can be used for various purposes,” he explained. Similarly, he emphasized that bitcoin (BTC), GRAM tokens, and XRP have all been part of investment contracts without being classified as securities themselves. “BTC was once included in an investment contract (security) but ultimately, it is just BTC,” he clarified.
Deaton highlighted that courts have explicitly ruled that XRP is not inherently a security, even if it has been offered as part of an investment contract under certain circumstances. In the case of the SEC v. Ripple, he noted:
Judge Torres acknowledged that although XRP could be presented as a security in specific scenarios, XRP itself is not a security.
Gary Gensler, the Chair of the U.S. Securities and Exchange Commission (SEC), has consistently categorized bitcoin as a commodity rather than a security. However, he has not definitively classified ether, leading to ongoing debates within the cryptocurrency community and among regulators regarding its status as a security or a commodity. This lack of clarity has sparked discussions on how to appropriately classify and regulate ethereum and other digital assets.
Deaton has called on the leadership at the SEC to address this issue of misrepresentation. His argument emphasizes the importance of distinguishing between underlying assets and the contracts used to market them, urging regulators to provide clarity and avoid treating all assets within such agreements as securities.