Cryptocurrency has seen unprecedented growth since its early beginnings in the late 2000s. Throughout this time, governments and regulatory bodies have scrambled to find an appropriate classification for cryptocurrency.
Classification is Key
Some argue that crypto should be classified as personal goods, while others claim that they should be treated as securities. Many proponents argue that they should be viewed as legitimate forms of currency (hence the name ‘cryptocurrency’) and thus should not be classified as either goods or securities. This constant debate is crucial because each of these types has its own form of regulation.
Securities are treated much more harshly than standard consumer goods, of course. If a company issues securities to the public, then that company must abide by a number of seemingly endless regulations from the Securities and Exchange Commission (SEC) and other regulatory bodies. On the other hand, a company that simply sells consumer goods normally does not have to abide by strict government regulations or standards that the SEC implements. This fundamentally changes the nature of cryptocurrency.
This ongoing issue has perplexed both the SEC and industry players alike. In a recent interview with Stuart Alderoty, general counsel of Ripple Labs, Alderoty explained how the ongoing debate has affected the overall crypto industry.
“The regulatory morass is resulting in bizarre outcomes,” he says.
Ripple is perhaps one of the most popular coins in the world, with nearly 90% of its trading volume occurring overseas. Ripple Labs was sued by the SEC last year as the SEC claimed that the company sold “unregistered digital-asset securities” worth over $1.3 billion. This is where the classification of cryptocurrencies is crucial as the industry grows.
As a result of this lawsuit filed in December 2020, the price of Ripple plummeted nearly 40% in just a few days. This led Coinbase, a popular crypto exchange, to temporarily suspend trading in Ripple.
Fight for the Long Run
These effects can have disastrous effects on companies, investors, and the cryptocurrency industry as a whole. Alderoty explains that this inconsistency is problematic for the industry. As such, Alderoty says, “We think that this case is incredibly important to the digital asset industry in the United States.” Furthermore, Alderoty says that Ripple is “fighting not only to get the right result for Ripple. We’re fighting to get the right result for the industry.”
Alderoty notes that many foreign countries have sufficient legal frameworks for cryptocurrency, including the UK, Singapore, Japan, and others. However, the US has yet to implement such a framework, which has prompted Ripple and others in the industry to push for legitimate regulations to prevent inconsistency and disastrous effects in the future.
“We’re not asking to be free of regulation. What we want is rational regulation that we can understand,” Alderoty explains.Have questions about a securities litigation case that could affect your business or your cryptocurrency investments? Vernon Litigation Group offers our legal counsel and representation to clients across the United States. Contact us now.