Ripple, the blockchain company behind the cryptocurrency XRP, recently stated in a letter to the U.S. Securities and Exchange Commission (SEC) that fungible cryptocurrencies do not constitute securities in secondary trading transfers.

In the letter submitted on May 27, Ripple cited the professional opinion of renowned U.S. attorney and crypto legal thought leader Lewis Cohen to support its position. Cohen wrote in his widely respected 2022 paper "The Irreducibility of Securities Law: Why Fungible Crypto Assets Are Not Securities in Secondary Trading" that "there is no basis in the current legal framework regarding 'investment contracts' to classify most fungible crypto assets as 'securities' when transferred in secondary trading."

Cohen elaborated in his paper that there is typically no investment contract trading relationship in secondary trading. He further argued that fungible cryptocurrencies "neither create nor represent" the necessary, cognizable legal relationship between a legal entity and the holder, which is the "core characteristic of securities."

Ripple also specifically referenced SEC Commissioner Hester Peirce's important speech on May 19 regarding a "new paradigm." Peirce stated that she has consistently expressed dissent regarding the regulatory approach to cryptocurrencies and emphasized, "Coming out of the crypto dissent period, I am honored to present a rational and coherent path forward and the SEC's new regulatory paradigm as the head of the committee's cryptocurrency working group."

Peirce clearly pointed out that the SEC's "regulatory approach to cryptocurrencies has deviated from sound regulatory practices in recent years and must be corrected." She further confirmed that most cryptocurrencies do not fall under the category of securities, adding, "Most crypto assets currently in the market are not securities. I need to add that economic reality is very important; non-security crypto assets may be distributed as part of an investment contract (a type of security)."

The SEC has insisted on classifying most digital assets as securities, with former SEC Chairman Gary Gensler publicly stating in 2023 that the vast majority of the crypto market falls under the securities regulatory framework. This position has led to a protracted legal dispute between the SEC and Ripple.

The lawsuit began in late 2020 when the SEC sued Ripple and its executives, claiming that XRP sales constituted an unregistered securities offering. However, with the change in the government's stance on cryptocurrency policy following the election of current U.S. President Trump, Ripple has largely emerged victorious in this legal battle, as the SEC recently dropped its appeal against a judicial ruling favorable to the company.

In a recent letter to the SEC, Ripple also cited a key ruling in the case, pointing out that "the court found that certain historical actions by Ripple regarding institutional sales of XRP constituted investment contracts," while secondary market sales did not fall into this category. More importantly, the judge "explicitly ruled that XRP itself is not a security."

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Original: “Ripple tells SEC that fungible cryptocurrencies in secondary sales are not securities”

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