TechCrunch Founder Questions SEC’s Lawsuit Against Ripple Over XRP Token

Michael Arrington, the founder of TechCrunch, has questioned the U.S. Securities and Exchange Commission’s (SEC’s) lawsuit against Ripple Labs over the XRP token, arguing the Howey test is outdated.

During an interview with Layah Heilpern, first spotted by Daily Hodl, Arrington argued that the Howey test, which asks whether the value of a transaction for one of its participants is dependent upon the other’s work, is still relevant nowadays, especially taking into account the developments of the cryptocurrency space.

According to Investopedia, the test determines a transaction represents an investment contract 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.” Arrington, during the interview, said he believes the test is no longer relevant in the digital age.

Per his words, asking whether or not something is a security “plays into the hands of the SEC,” as the agency wants “everybody using their definitions to decide what is and isn’t a security..” He added we buy cryptoassets hoping to make money when denominating the cryptoassets in USD, because “we don’t believe we dollars anymore.”

After asking whether these crypto transactions are securities, he added it depends because if it is, the SEC can “really put the hurt on you.” He added:

I think it’s all securities in the sense of, we’re all buying these things because we’re trying to get into assets that will protect us from what the dollar is doing. But no, we look at the Howey Test, the hundred-year-old test that’s absolutely useless in a modern world. It’s ridiculous…

Arrington said he does not believe that, from the SEC’s point of view, the XRP token is a security, and added his own point of view does not matter. His comments come after the SEC sued Ripple Labs and two of its executives, who are also significant XRP holders, alleging that they “raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.”

Arrington added that what is and is not a security is “totally irrelevant” and “just comes down to whether you only allow rich people to trade an asset” or whether you allow everyone to trade it. He hopes, however, that regulatory clarity comes from the lawsuit.

To the entrepreneur, the SEC is an entity that changes over time, and what it wants over time is “largely going to be dependent on what the executive branch wants over time.”  Arrington, it’s worth noting, is the founder of Arrington XRP Capital, a digital asset manager launched in 2017 using XRP to invest in blockchain technology.

It’s worth noting some crypto exchanges have sided with Ripple on the lawsuit, arguing that the SEC’s move hurt XRP investors. Crypto exchange Uphold pointed out that the SEC’s goal is to protect consumers, and believes it’s hard to see “how a judgment rendering XRP essentially worthless and inflicting billions of dollars of losses on retail investors” would square with that goal.

Ripple itself has argued the lawsuit “already affected countless innocent XRP retail holders with no connection to Ripple.” It added it “muddied the waters for exchanges, market makers, and traders.”

Featured image via Pixabay.

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