The Founder Of Cryptolaw Provides An Explanation As To Why $Xrp And $Eth Are Not Considered Securities

The Founder Of CryptoLaw Provides An Explanation As To Why $XRP And $ETH Are Not Considered Securities

John Deaton, a reputable attorney with a keen interest in the ongoing lawsuit between the U.S. SEC and Ripple, has voiced his opinion on why both $XRP and $ETH should not be classified as securities.

As the Managing Partner of Deaton Law Firm and founder of CryptoLaw – a website dedicated to tracking legal and regulatory developments in the U.S. for holders of digital assets – Deaton is a well-known figure in the cryptocurrency industry. He is also the host of the popular YouTube channel CryptoLaw.

Deaton took to Twitter to share his thoughts with his massive following of 258K about securities and how they relate to digital assets.

Starting with the commonly misunderstood legal term “investment contract,” Deaton explained how the Howey Test is often misapplied on social media. He then turned to the Securities Act of 1933, which outlines the definition of “security” but doesn’t explicitly include digital assets or software code.

According to Deaton, in cases involving digital assets like Telegram, Kik, LBRY, and Ripple, the applicable term is “investment contract.”

Deaton explains that, based on the Howey Test, a digital asset or cryptocurrency (i.e., software code) is not inherently a security. However, it can be marketed or sold as an investment contract, making it a security under certain circumstances.

Despite the $ETH ICO being an unregistered securities offering and Ripple potentially selling $XRP as an unregistered security on some occasions, Deaton believes that $GRAM token, $XRP, and $ETH are not securities.

He emphasizes that the underlying asset – the digital code – is not a security. There has never been a case in the United States where the secondary sale of that asset was deemed a security. To illustrate this point, Deaton references the Howey Test and posits that if an investor sold an orange grove (as in the Howey case) to a second buyer without knowledge of the Howey Company, the subsequent sale would be not be considered a security.

According to Deaton, it doesn’t matter if $ETH was offered as a security during its ICO or if $XRP was sold between 2013 and 2018 – neither of these digital assets can be classified as securities.

He emphasized that all altcoins could be perceived as securities when initially distributed, whether through an ICO or not.

In his final remarks, Deaton urged the industry not to let the SEC and Bitcoin enthusiasts take a shortcut by mislabeling tokens as securities.

Coinbase’s Chief Legal Officer, Paul Grewal, also agrees with Deaton’s perspective that secondary sales of digital assets should not be deemed as securities because there is no investment contract involved.

Also Read: The Euler Hacker Has Returned $31 Million, Signaling The Exhaustion Of Recoverable Funds In The Defi Exploit

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